UPDATE: Halliburton Profit Hit By KBR Fine; Downturn Ahead
27 January 2009 - 3:09AM
Dow Jones News
Halliburton Co.'s (HAL) fourth-quarter net income tumbled 32% as
the settlement of a bribery charge against former subsidiary KBR
Inc. weighed on earnings. The company's sales and margins otherwise
improved despite declining demand for oilfield services as energy
prices fall.
Excluding the fine, the company fared better than Schlumberger
Ltd. (SLB), its leading competitor, which reported a year-on-year
decline in fourth-quarter profits on Friday. Weatherford
International Ltd. (WFT) also reported a small increase in
fourth-quarter net income on Monday, excluding an after-tax
charge.
Halliburton reported net income of $468 million, or 53 cents a
share, compared with $690 million, or 75 cents a share, a year
earlier. The latest quarter included a $303 million charge, or 34
cents a share, tied to a settlement with the U.S. government
related to bribery charges against KBR Inc. Revenue climbed 17% to
$4.91 billion. Analysts polled by Thomson Reuters gave an average
earnings estimate of 73 cents a share on $4.82 billion in
revenue.
Albert J. Stanley, KBR's former CEO, pleaded guilty in September
to approving bribes to Nigerian government officials in order to
win a construction contract for a liquefied natural gas facility.
KBR Inc. and Halliburton severed ties in April 2007.
The settlement, in which Halliburton will pay $382 million to
the Justice Department over two years, as well as $177 million to
the Securities and Exchange Commission, is the largest fine ever
for a U.S. company alleged to be in violation of the Foreign
Corrupt Practices Act, which prohibits the bribery of foreign
officials.
Halliburton otherwise saw its operating margin climb to 24% from
22%, which CEO David Lesar attributed to the company's focus on
holding the line on pricing even as the overall volume of business
fell.
Oil and natural gas prices fell sharply in the fourth quarter
and are now expected to remain at or near multi-year lows for much
of 2009. Producers have announced budget cuts worldwide, with Lesar
anticipating the steepest cuts in North America, the North Sea and
Russia. Exploration work is likely to be postponed until oil and
gas prices support starting new projects, he said.
Producers have already cut 2009 budgets by 25% in Russia, Lesar
said.
"In the international market, (we expect) a slowdown but not a
cancellation of existing projects and a deferral of new projects,"
Lesar said in a conference call.
Halliburton sees the steep, and quick, cut in producer spending
as potentially boosting prices. The largest cuts are occurring in
older oil and gas fields, and the resulting loss in production has
in the past sparked a quick rebound in prices and spending. North
American drilling activity, which is mainly tied to natural gas
prices, recovered after three quarters in 2001, the last time
spending fell so sharply, said Tim Probert, executive vice
president for strategy and corporate development.
"Anytime that you see a short and sharp reduction in activity
... will provoke some supply response relatively quickly, and
obviously that impacts pricing directly," Probert said.
Halliburton, along with Schlumberger and other oil-services
providers, has laid off workers and is keeping spending close to
2008 levels. Further cuts to the workforce are coming, Lesar
said.
Halliburton's shares recently traded 6% higher at $19.35. It
closed Friday's session at $18.25 and weren't active pre-market.
The stock has fallen 65% since July, around when oil prices
peaked.
-By Brian Baskin, Dow Jones Newswires; 201-938-2062;
brian.baskin@dowjones.com
(Shirleen Dorman in New York contributed to this article)
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