hal-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______to_______

Commission File Number 001-03492

HALLIBURTON COMPANY

(Exact name of registrant as specified in its charter)


Delaware			75-2677995
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)


3000 North Sam Houston Parkway East,	Houston,	Texas	77032
(Address of principal executive offices)			(Zip Code)

(281) 871-2699

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $2.50 per share	HAL	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes ☒ No

As of April 19, 2023, there were 902,194,900 shares of Halliburton Company common stock, $2.50 par value per share, outstanding.

HALLIBURTON COMPANY

Index


		Page No.
PART I.	FINANCIAL INFORMATION	1

Item 1.	Financial Statements	1
	Condensed Consolidated Statements of Operations	1
	Condensed Consolidated Statements of Comprehensive Income	2
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
	Note 1. Basis of Presentation	5

	Note 2 . Business Segment Information	5
	Note 3 . Revenue	6
	Note 4 . Inventories	8
	Note 5 . Accounts Payabl e	8
	Note 6 . Income Taxes	8
	Note 7 . Shareholders' Equity	9
	Note 8 . Commitments and Contingencies	10
	Note 9 . Income per Share	10
	Note 1 0 . Fair Value of Financial Instruments	10
	Note 1 1 . Subsequent Event	11

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
	Executive Overview	12
	Liquidity and Capital Resources	15
	Business Environment and Results of Operations	17
	Results of Operations in 202 3 Compared to 202 2	19

	Forward-Looking Information	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21

PART II.	OTHER INFORMATION	22

Item 1.	Legal Proceedings	22
Item 1(a).	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Mine Safety Disclosures	23
Item 5.	Other Information	23
Item 6.	Exhibits	24

SIGNATURES		25


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HALLIBURTON COMPANY

Condensed Consolidated Statements of Operations

(Unaudited)


		Three Months Ended March 31
Millions of dollars and shares except per share data		2023		2022
Revenue:
Services		$	4,166	$	3,073
Product sales		1,511		1,211
Total revenue		5,677		4,284
Operating costs and expenses:
Cost of services		3,399		2,710
Cost of sales		1,247		989
Impairments and other charges		—		22
General and administrative		54		52
Total operating costs and expenses		4,700		3,773
Operating income		977		511
Interest expense, net of interest income of $39 and $19		(79)		(107)
Loss on early extinguishment of debt		—		(42)
Other, net		(69)		(30)
Income before income taxes		829		332
Income tax provision		(174)		(68)


Net income		$	655	$	264
Net income attributable to noncontrolling interest		(4)		(1)
Net income attributable to company		$	651	$	263













Basic and diluted net income per share		$	0.72	$	0.29

Basic weighted average common shares outstanding		904		899
Diluted weighted average common shares outstanding		907		903
	See notes to condensed consolidated financial statements.

HAL Q1 2023 FORM 10-Q | 1


Table of Contents

HALLIBURTON COMPANY

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


		Three Months Ended March 31
Millions of dollars		2023		2022
Net income		$	655	$	264




Other comprehensive income, net of income taxes		1		5
Comprehensive income		$	656	$	269
Comprehensive income attributable to noncontrolling interest		(4)		(1)
Comprehensive income attributable to company shareholders		$	652	$	268
	See notes to condensed consolidated financial statements.

HAL Q1 2023 FORM 10-Q | 2


Table of Contents

HALLIBURTON COMPANY

Condensed Consolidated Balance Sheets

(Unaudited)


Millions of dollars and shares except per share data		March 31, 2023		December 31, 2022
Assets
Current assets:
Cash and equivalents		$	1,879	$	2,346
Receivables (net of allowances for credit losses of $720 and $731)		5,195		4,627
Inventories		3,133		2,923


Other current assets		1,038		1,056
Total current assets		11,245		10,952
Property, plant, and equipment (net of accumulated depreciation of $11,689 and $11,660)		4,399		4,348
Goodwill		2,829		2,829
Deferred income taxes		2,574		2,636
Operating lease right-of-use assets		940		913
Other assets		1,632		1,577
Total assets		$	23,619	$	23,255
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	3,180	$	3,121
Accrued employee compensation and benefits		474		634
Taxes other than income		299		349
Income tax payable		293		294
Current portion of operating lease liabilities		227		224

Other current liabilities		793		723
Total current liabilities		5,266		5,345
Long-term debt		7,929		7,928
Operating lease liabilities		812		791
Employee compensation and benefits		377		408
Other liabilities		790		806
Total liabilities		15,174		15,278
Shareholders’ equity:
Common stock, par value $2.50 per share (authorized 2,000 shares, issued 1,065 and 1,066 shares)		2,664		2,664
Paid-in capital in excess of par value		—		50
Accumulated other comprehensive loss		(229)		(230)
Retained earnings		11,075		10,572
Treasury stock, at cost (163 and 164 shares)		(5,095)		(5,108)
Company shareholders’ equity		8,415		7,948
Noncontrolling interest in consolidated subsidiaries		30		29
Total shareholders’ equity		8,445		7,977
Total liabilities and shareholders’ equity		$	23,619	$	23,255
	See notes to condensed consolidated financial statements.

HAL Q1 2023 FORM 10-Q | 3


Table of Contents

HALLIBURTON COMPANY

Condensed Consolidated Statements of Cash Flows

(Unaudited)


		Three Months Ended March 31
Millions of dollars		2023		2022
Cash flows from operating activities:
Net income		$	655	$	264
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation, depletion, and amortization		241		232
Impairments and other charges		—		22


Changes in assets and liabilities:
Receivables		(575)		(368)
Inventories		(210)		(225)
Accrued employee benefits		(189)		(87)
Accounts payable		57		207
Other operating activities		143		(95)
Total cash flows provided by (used in) operating activities		122		(50)
Cash flows from investing activities:
Capital expenditures		(268)		(189)

Proceeds from sales of property, plant, and equipment		41		56


Other investing activities		(68)		(22)
Total cash flows used in investing activities		(295)		(155)
Cash flows from financing activities:
Dividends to shareholders		(145)		(108)
Stock repurchase program		(100)		—
Payments on long-term borrowings		—		(640)

Other financing activities		(4)		80
Total cash flows used in financing activities		(249)		(668)
Effect of exchange rate changes on cash		(45)		(17)
Decrease in cash and equivalents		(467)		(890)
Cash and equivalents at beginning of period		2,346		3,044
Cash and equivalents at end of period		$	1,879	$	2,154
Supplemental disclosure of cash flow information:
Cash payments during the period for:
Interest		$	127	$	134
Income taxes		$	148	$	78
	See notes to condensed consolidated financial statements.

HAL Q1 2023 FORM 10-Q | 4


Table of Contents			Part I. Item 1 \| Notes to Condensed Consolidated Financial Statements

HALLIBURTON COMPANY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, these financial statements do not include all information or notes required by generally accepted accounting principles for annual financial statements and should be read together with our 2022 Annual Report on Form 10-K.

Our accounting policies are in accordance with United States generally accepted accounting principles. The preparation of financial statements in conformity with these accounting principles requires us to make estimates and assumptions that affect:

•the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements; and

•the reported amounts of revenue and expenses during the reporting period.

Ultimate results could differ from our estimates.

In our opinion, the condensed consolidated financial statements included herein contain all adjustments necessary to present fairly our financial position as of March 31, 2023 and the results of our operations for the three months ended March 31, 2023 and 2022, and our cash flows for the three months ended March 31, 2023 and 2022. Such adjustments are of a normal recurring nature. In addition, certain reclassifications of prior period balances have been made to conform to the current period presentation.

The results of our operations for the three months ended March 31, 2023 may not be indicative of results for the full year.

Note 2. Business Segment Information

We operate under two divisions, which form the basis for the two operating segments we report: the Completion and Production segment and the Drilling and Evaluation segment. Our equity in earnings and losses of unconsolidated affiliates that are accounted for using the equity method of accounting are included within cost of services and cost of sales on our statements of operations, which is part of operating income of the applicable segment.

HAL Q1 2023 FORM 10-Q | 5


Table of Contents			Part I. Item 1 \| Notes to Condensed Consolidated Financial Statements

The following table presents information on our business segments.


		Three Months Ended March 31
Millions of dollars		2023		2022
Revenue:
Completion and Production		$	3,409	$	2,353
Drilling and Evaluation		2,268		1,931
Total revenue		$	5,677	$	4,284
Operating income:
Completion and Production		$	666	$	296
Drilling and Evaluation		369		294
Total operations		1,035		590
Corporate and other (a)		(58)		(57)
Impairments and other charges (b)		—		(22)
Total operating income		$	977	$	511
Interest expense, net of interest income		(79)		(107)
Loss on early extinguishment of debt		—		(42)
Other, net		(69)		(30)
Income before income taxes		$	829	$	332

(a)	Includes certain expenses not attributable to a business segment, such as costs related to support functions, corporate executives, and operating lease assets, and also includes amortization expense associated with intangible assets recorded as a result of acquisitions.
(b)	For the three months ended March 31, 2022, the amount includes a $6 million charge attributable to Completions and Production, a $17 million charge attributable to Drilling and Evaluation, and a $1 million gain attributable to Corporate and other.

Note 3. Revenue

Revenue is recognized based on the transfer of control or our customers' ability to benefit from our services and products in an amount that reflects the consideration we expect to receive in exchange for those services and products. Most of our service and product contracts are short-term in nature. In recognizing revenue for our services and products, we determine the transaction price of purchase orders or contracts with our customers, which may consist of fixed and variable consideration. We also assess our customers' ability and intention to pay, which is based on a variety of factors, including our historical payment experience with, and the financial condition of, our customers. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 20 to 60 days. Other judgments involved in recognizing revenue include an assessment of progress towards completion of performance obligations for certain long-term contracts, which involve estimating total costs to determine our progress towards contract completion and calculating the corresponding amount of revenue to recognize.

Disaggregation of revenue

We disaggregate revenue from contracts with customers into types of services or products, consistent with our two reportable segments, in addition to geographical area. Based on the location of services provided and products sold, 47% and 43% of our consolidated revenue was from the United States for the three months ended March 31, 2023 and 2022, respectively. No other country accounted for more than 10% of our revenue.

HAL Q1 2023 FORM 10-Q | 6


Table of Contents			Part I. Item 1 \| Notes to Condensed Consolidated Financial Statements

The following table presents information on our disaggregated revenue.


	Three Months Ended March 31
Millions of dollars	2023		2022
Revenue by segment:
Completion and Production	$	3,409	$	2,353
Drilling and Evaluation	2,268		1,931
Total revenue	$	5,677	$	4,284
Revenue by geographic region:
North America	$	2,765	$	1,925
Latin America	915		653
Europe/Africa/CIS	662		677
Middle East/Asia	1,335		1,029
Total revenue	$	5,677	$	4,284

Contract balances

We perform our obligations under contracts with our customers by transferring services and products in exchange for consideration. The timing of our performance often differs from the timing of our customer’s payment, which results in the recognition of receivables and deferred revenue. Deferred revenue represents advance consideration received from customers for contracts where revenue is recognized on future performance of service. Deferred revenue, as well as revenue recognized during the period relating to amounts included as deferred revenue at the beginning of the period, was not material to our condensed consolidated financial statements.

Transaction price allocated to remaining performance obligations

Remaining performance obligations represent firm contracts for which work has not been performed and future revenue recognition is expected. We have elected the practical expedient permitting the exclusion of disclosing remaining performance obligations for contracts that have an original expected duration of one year or less. We have some long-term contracts related to software and integrated project management services such as lump sum turnkey contracts. For software contracts, revenue is generally recognized over time throughout the license period when the software is considered to be a right to access our intellectual property. For lump sum turnkey projects, we recognize revenue over time using an input method, which requires us to exercise judgment. Revenue allocated to remaining performance obligations for these long-term contracts is not material.

Receivables

As of March 31, 2023, 36% of our net trade receivables were from customers in the United States and 13% were from customers in Mexico. As of December 31, 2022, 38% of our net trade receivables were from customers in the United States and 11% were from customers in Mexico. Receivables from our primary customer in Mexico accounted for approximately 11% and 9% of our total receivables as of March 31, 2023 and December 31, 2022, respectively. While we have experienced payment delays in Mexico, these amounts are not in dispute and we have not historically had, and we do not expect, any material write-offs due to collectability of receivables from this customer. No other country or single customer accounted for more than 10% of our net trade receivables at those dates.

We have risk of delayed customer payments and payment defaults associated with customer liquidity issues. We routinely monitor the financial stability of our customers and employ an extensive process to evaluate the collectability of outstanding receivables. This process, which involves a high degree of judgment utilizing significant assumptions, includes analysis of our customers’ historical time to pay, financial condition and various financial metrics, debt structure, credit ratings, and production profile, as well as political and economic factors in countries of operations and other customer-specific factors.

HAL Q1 2023 FORM 10-Q | 7


Table of Contents			Part I. Item 1 \| Notes to Condensed Consolidated Financial Statements

Note 4. Inventories

Inventories consisted of the following:


Millions of dollars	March 31, 2023		December 31, 2022
Finished products and parts	$	1,995	$	1,859
Raw materials and supplies	1,011		953
Work in process	127		111
Total inventories	$	3,133	$	2,923

Note 5. Accounts Payable

Effective January 1, 2023, we adopted new supplier finance program disclosure requirements contained in guidance issued by the Financial Accounting Standards Board (ASU 2022-04, "Disclosure of Supplier Finance Program Obligations"), other than the roll-forward disclosure, which we will adopt at the beginning of 2024.

We have agreements with third parties that allow our participating suppliers to finance payment obligations from us with designated third-party financial institutions who act as our paying agent. We have generally extended our payment terms with suppliers to 90 days. A participating supplier may request a participating financial institution to finance one or more of our payment obligations to such supplier prior to the scheduled due date thereof at a discounted price. We are not required to provide collateral to the financial institutions.

Our obligations to participating suppliers, including amounts due and scheduled payment dates, are not impacted by the suppliers’ decisions to finance amounts due under these financing arrangements. Our outstanding payment obligation to participating suppliers was $321 million as of March 31, 2023, and $273 million as of December 31, 2022, and is included in accounts payable on the condensed consolidated balance sheets.

Note 6. Income Taxes

During the three months ended March 31, 2023, we recorded a total income tax provision of $174 million on a pre-tax income of $829 million, resulting in an effective tax rate of 21.0% for the quarter. During the three months ended March 31, 2022, we recorded a total income tax provision of $68 million on a pre-tax income of $332 million, resulting in an effective tax rate of 20.5% for the quarter.

HAL Q1 2023 FORM 10-Q | 8


Table of Contents			Part I. Item 1 \| Notes to Condensed Consolidated Financial Statements

Note 7. Shareholders’ Equity

The following tables summarize our shareholders’ equity activity for the three months ended March 31, 2023 and March 31, 2022, respectively:


Millions of dollars		Common Stock		Paid-in Capital in Excess of Par Value		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interest in Consolidated Subsidiaries		Total
Balance at December 31, 2022		$	2,664	$	50	$	(5,108)	$	10,572	$	(230)	$	29	$	7,977
Comprehensive income (loss):
Net income		—		—		—		651		—		4		655
Other comprehensive income		—		—		—		—		1		—		1
Cash dividends ($0.16 per share)		—		—		—		(145)		—		—		(145)
Stock repurchase program		—		—		(100)		—		—		—		(100)
Stock plans (a)		—		(50)		113		(3)		—		—		60
Other		—		—		—		—		—		(3)		(3)
Balance at March 31, 2023		$	2,664	$	—	$	(5,095)	$	11,075	$	(229)	$	30	$	8,445
















(a)	In the first quarter of 2023, we issued common stock from treasury shares for stock options exercised, restricted stock grants, and our employee stock purchase plan. As a result, additional paid in capital was reduced to zero, which resulted in a reduction of retained earnings by $3 million. Additional issuances from treasury shares could similarly impact additional paid in capital and retained earnings.


Millions of dollars		Common Stock		Paid-in Capital in Excess of Par Value		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interest in Consolidated Subsidiaries		Total
Balance at December 31, 2021		$	2,665	$	32	$	(5,511)	$	9,710	$	(183)	$	15	$	6,728
Comprehensive income (loss):
Net income		—		—		—		263		—		1		264
Other comprehensive income		—		—		—		—		5		—		5
Cash dividends ($0.12 per share)		—		—		—		(108)		—		—		(108)

Stock plans (a)		—		(32)		261		(85)		—		—		144

Balance at March 31, 2022		$	2,665	$	—	$	(5,250)	$	9,780	$	(178)	$	16	$	7,033
















(a)	In the first quarter of 2022, we issued common stock from treasury shares for stock options exercised, restricted stock grants, and our employee stock purchase plan. As a result, additional paid in capital was reduced to zero, which resulted in a reduction of retained earnings by $85 million. Additional issuances from treasury shares could similarly impact additional paid in capital and retained earnings.

Our Board of Directors has authorized a program to repurchase our common stock from time to time. We purchased 2.9 million shares of our common stock under the program during the three months ended March 31, 2023 for $100 million. Approximately $4.8 billion remained authorized for repurchases as of March 31, 2023. From the inception of this program in February of 2006 through March 31, 2023, we repurchased approximately 234 million shares of our common stock for a total cost of approximately $9.4 billion.

Accumulated other comprehensive loss consisted of the following:


Millions of dollars	March 31, 2023		December 31, 2022
Cumulative translation adjustments	$	(83)	$	(84)
Defined benefit and other postretirement liability adjustments	(102)		(101)

Other	(44)		(45)
Total accumulated other comprehensive loss	$	(229)	$	(230)

HAL Q1 2023 FORM 10-Q | 9


Table of Contents			Part I. Item 1 \| Notes to Condensed Consolidated Financial Statements

Note 8. Commitments and Contingencies

The Company is subject to various legal or governmental proceedings, claims or investigations, including personal injury, property damage, environmental, intellectual property, commercial, tax, and other matters arising in the ordinary course of business, the resolution of which, in the opinion of management, will not have a material adverse effect on our consolidated results of operations or consolidated financial position. There is inherent risk in any legal or governmental proceeding, claim or investigation, and no assurance can be given as to the outcome of these proceedings.

Guarantee arrangements

In the normal course of business, we have in place agreements with financial institutions under which approximately $2.1 billion of letters of credit, bank guarantees, or surety bonds were outstanding as of March 31, 2023. Some of the outstanding letters of credit have triggering events that would entitle a bank to require cash collateralization. None of these off-balance sheet arrangements either has, or is likely to have, a material effect on our condensed consolidated financial statements.

Note 9. Income per Share

Basic income or loss per share is based on the weighted average number of common shares outstanding during the period. Diluted income per share includes additional common shares that would have been outstanding if potential common shares with a dilutive effect had been issued. Antidilutive securities represent potentially dilutive securities which are excluded from the computation of diluted income or loss per share as their impact was antidilutive.

A reconciliation of the number of shares used for the basic and diluted income per share computations is as follows:


	Three Months Ended March 31
Millions of shares	2023	2022
Basic weighted average common shares outstanding	904	899
Dilutive effect of awards granted under our stock incentive plans	3	4
Diluted weighted average common shares outstanding	907	903

Antidilutive shares:
Options with exercise price greater than the average market price	14	16

Total antidilutive shares	14	16

Note 10. Fair Value of Financial Instruments

The carrying amount of cash and equivalents, receivables, and accounts payable, as reflected in the condensed consolidated balance sheets, approximates fair value due to the short maturities of these instruments.

The carrying amount and fair value of our total debt, including short-term borrowings and current maturities of long-term debt, is as follows:


	March 31, 2023								December 31, 2022
Millions of dollars	Level 1		Level 2		Total fair value		Carrying value		Level 1		Level 2		Total fair value		Carrying value
Total debt	$	6,837	$	939	$	7,776	$	7,930	$	6,539	$	917	$	7,456	$	7,928

In the first three months of 2023, the fair value of our debt increased as a result of lower debt yields.

Our debt categorized within level 1 on the fair value hierarchy is calculated using quoted prices in active markets for identical liabilities with transactions occurring on the last two days of period-end. Our debt categorized within level 2 on the fair value hierarchy is calculated using significant observable inputs for similar liabilities where estimated values are determined from observable data points on our other bonds and on other similarly rated corporate debt or from observable data points of transactions occurring prior to two days from period-end and adjusting for changes in market conditions. Differences between the periods presented in our level 1 and level 2 classification of our long-term debt relate to the timing of when third party market transactions on our debt are executed. We have no debt categorized within level 3 on the fair value hierarchy.

HAL Q1 2023 FORM 10-Q | 10


Table of Contents			Part I. Item 1 \| Notes to Condensed Consolidated Financial Statements

Note 11. Subsequent Event

Argentina Blue Chip Swap Transaction

The Central Bank of Argentina maintains currency controls that limit our ability to access U.S. dollars in Argentina and remit cash from our Argentine operations. Our functional currency in Argentina is the U.S. dollar and we remeasure our Argentine peso-denominated net assets into U.S. dollars at each balance sheet date using Argentina's official peso to U.S. dollar exchange rate then in effect. There is a foreign exchange mechanism known as Blue Chip Swaps, which effectively results in a parallel U.S. dollar exchange rate. This parallel rate, which cannot be used as the basis to remeasure our net monetary assets in U.S. dollars under U.S. GAAP, was approximately 94% higher than Argentina’s official exchange rate at March 31, 2023. During April of 2023, we began entering into Blue Chip Swap transactions in order to remit cash from our Argentine operations that could result in an estimated loss on investment of $60 million during the second quarter of 2023.

HAL Q1 2023 FORM 10-Q | 11


Table of Contents						Part I. Item 2 \| Executive Overview

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the condensed consolidated financial statements included in "Item 1. Financial Statements" contained herein.

EXECUTIVE OVERVIEW

Organization

We are one of the world's largest providers of products and services to the energy industry. We help our customers maximize value throughout the lifecycle of the reservoir - from locating hydrocarbons and managing geological data, to drilling and formation evaluation, well construction and completion, and optimizing production throughout the life of the asset. Activity levels within our operations are significantly impacted by spending on upstream exploration, development, and production programs by major, national, and independent oil and natural gas companies. We report our results under two segments, the Completion and Production segment and the Drilling and Evaluation segment.

•Completion and Production delivers cementing, stimulation, intervention, pressure control, artificial lift, specialty chemicals, and completion products and services. The segment consists of Production Enhancement, Cementing, Completion Tools, Production Solutions, Artificial Lift, Multi-Chem, and Pipeline and Process Services.

•Drilling and Evaluation provides field and reservoir modeling, drilling, fluids, evaluation, and precise wellbore placement solutions that enable customers to model, measure, drill, and optimize their well construction activities. The segment consists of Baroid, Sperry Drilling, Wireline and Perforating, Drill Bits and Services, Landmark Software and Services, Testing and Subsea, and Project Management.

The business operations of our segments are organized around four primary geographic regions: North America, Latin America, Europe/Africa/CIS, and Middle East/Asia. We have manufacturing operations in various locations, the most significant of which are in the United States, Malaysia, Singapore, and the United Kingdom. With approximately 46,000 employees, we operate in more than 70 countries around the world, and our corporate headquarters is in Houston, Texas.

Our value proposition is to collaborate and engineer solutions to maximize asset value for our customers. We work to achieve strong cash flows and returns for our shareholders by delivering technology and services that improve efficiency, increase recovery, and maximize production for our customers. Our strategic priorities are to:

- International: Allocate our capital to the highest return opportunities and increase our international growth in both onshore and offshore markets.

- North America: Drive better pricing, increased efficiency, and higher margin through utilization of our automated and intelligent fracturing technologies and increased market penetration of our premium low-emissions electronic fracturing equipment.

- Digital: Continue to drive differentiation and efficiencies through the deployment and integration of digital and automation technologies, both internally and for our customers.

- Capital efficiency: Maintain our capital expenditures in the range of 5-6% of revenue while focusing on technological advancements and process changes that reduce our manufacturing and maintenance costs and improve how we move equipment and respond to market opportunities.

- Sustainability and energy mix transition: Continue to:

• Leverage the increasing number of participants in and scope of Halliburton Labs to gain insight into developing value chains in the energy mix transition;

• Develop and deploy solutions to help oil and gas operators lower their emissions while also using our existing technologies in renewable energy applications;

• Develop technologies and solutions to lower our own emissions; and

• Grow our participation in the entire life cycle of carbon capture and storage, hydrogen, and geothermal projects globally.

The following charts depict the revenue split between our two operating segments and our four primary geographic regions for the quarter ended March 31, 2023.

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Table of Contents						Part I. Item 2 \| Executive Overview

Market conditions

Commodity price volatility continued during the first quarter of 2023 driven by inflationary pressures, changes to OPEC+ production levels, supply chain shortages, demand uncertainty, recessionary fears, and geopolitical conflicts. During the first quarter of 2023, the West Texas Intermediate (WTI) crude oil price averaged approximately $76 per barrel and the Brent crude oil price average approximately $81 per barrel. Both of these prices were well below the average price per barrel for 2022. The U.S. land average rig count continued to be lower than pre-COVID-19 pandemic levels. On April 2, 2023, OPEC+ announced a voluntary production cut of 1.2 million barrels per day, effective May 2023 through the end of the year, in addition to the Russian Federation's announcement of a reduction of 0.5 million barrels per day from March 2023 until the end of 2023. The International Energy Agency's (IEA) April 2023 "Oil Market Report" indicates that the additional OPEC+ cut will push world oil supply down by 0.4 million barrels per day by the end of 2023, thus resulting in an expected oil supply deficit. We believe that these production cuts, together with the continued underinvestment in oil and gas exploration when compared to historic levels will result in higher oil prices. The Brent crude oil spot price in the United States Energy Information Administration (EIA)'s April 2023 forecast averages $85 per barrel in 2023, an increase of 2.4%, or $2 per barrel, from the prior month's forecast, reflecting a decrease in global production and a relatively unchanged outlook for global oil consumption.

Globally, we continue to be impacted by increased supply chain lead times for the supply of raw materials and transportation logistics. We monitor market trends and work to mitigate cost impacts through economies of scale in global procurement, technology modifications, and efficient sourcing practices. Also, while we have been impacted by inflationary cost increases, primarily related to frac sand, chemicals, cement, and logistics costs, we generally try to pass much of those increases on to our customers and we believe we have effective solutions to minimize the operational impact.

Financial results

The following graph illustrates our revenue and operating margins for each operating segment for the first quarter of 2022 and 2023.

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Table of Contents						Part I. Item 2 \| Executive Overview

During the first quarter of 2023, we generated total company revenue of $5.7 billion, a 33% increase as compared to the first quarter of 2022. We reported operating income of $977 million during the first quarter of 2023 compared to operating income of $511 million during the first quarter of 2022. Our Completion and Production segment revenue increased 45% in the first quarter of 2023 as compared to the first quarter of 2022, primarily due to increased pressure pumping services in North America land. Our Drilling and Evaluation segment revenue increased 17% in the first quarter of 2023 as compared to the first quarter of 2022, driven primarily by improvements in drilling-related services, wireline activity, and testing services globally. Both segment results were negatively impacted in the first quarter of 2023 when compared to the first quarter of 2022, as a result of the sale of our Russian operations during the third quarter of 2022.

In North America, our revenue increased 44% in the first quarter of 2023, as compared to the first quarter of 2022, driven by increased stimulation activity and pricing gains, increased well construction and wireline activity in North America land, and increased activity in the U.S. Gulf of Mexico across multiple product service lines. The North America average rig count increased 18% in the first quarter of 2023 as compared to the first quarter of 2022.

Internationally, revenue increased 23% in the first quarter of 2023, as compared to the first quarter of 2022, primarily driven by higher activity for drilling and completions related services across all regions, partially offset by the sale of our Russian operations during the third quarter of 2022. The international average rig count increased 11% in the first quarter of 2023 as compared to the first quarter of 2022.

Sustainability and Energy Advancement

We continue to pursue our strategic initiatives around advancing cleaner, affordable energy, and supporting sustainable energy advancements using innovation and technology to decarbonize both our and our customers' operations. This includes the continued development and deployment of solutions designed to help oil and gas operators lower their environmental impact while also using our existing technologies in sustainable energy applications.

In February of 2023, Halliburton and Siguler Guff & Company, LP announced the launch of Envana Software Partners, LLC. The new venture provides critical emissions management software-as-a-service solutions to track greenhouse gas emissions in the oil and gas industry and other industries.

In addition, Halliburton Labs, our clean energy accelerator, continues to provide us insight into developing value chains in the energy mix transition and opportunities to assist early stage companies to enable them to achieve scaling milestones. Halliburton Labs has 24 participants and alumni as of the end of the first quarter of 2023.

Our operating performance and liquidity are described in more detail in "Liquidity and Capital Resources" and “Business Environment and Results of Operations.”

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Table of Contents						Part I. Item 2 \| Liquidity and Capital Resources

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2023, we had $1.9 billion of cash and equivalents, compared to $2.3 billion of cash and equivalents at December 31, 2022.

Significant sources and uses of cash during the first three months of 2023

Sources of cash:

•Cash flows from operating activities were $122 million. This included a negative impact from the primary components of our working capital (receivables, inventories, and accounts payable) of a net $728 million, primarily associated with increased receivables and inventory.

Uses of cash:

•Capital expenditures were $268 million.

•We paid $145 million of dividends to our shareholders.

•We repurchased 2.9 million shares of our common stock for $100 million.

Future sources and uses of cash

We manufacture most of our own equipment, which provides us with some flexibility to increase or decrease our capital expenditures based on market conditions. We currently expect capital spending for 2023 to be within our target of approximately 5-6% of revenue. We believe this level of spend will allow us to invest in our key strategic areas. However, we will continue to maintain capital discipline and monitor the rapidly changing market dynamics, and we may adjust our capital spend accordingly.

While we maintain focus on liquidity and debt reduction, we are also focused on providing cash returns to our shareholders. Our quarterly dividend rate is $0.16 per common share, or approximately $145 million. In January of 2023, our Board of Directors approved a capital return framework with a goal of returning at least 50% of our annual free cash flow to shareholders through dividends and share repurchases and we expect our returns to shareholders will be in line with our capital return framework for 2023.

We may utilize share repurchases as part of our capital return framework. Our Board of Directors has authorized a program to repurchase our common stock from time to time. Repurchases of 2.9 million shares of common stock occurred during the first quarter of 2023 under this program. Approximately $4.8 billion remained authorized for repurchases as of March 31, 2023 and may be used for open market and other share purchases.

Other factors affecting liquidity

Financial position in current market. As of March 31, 2023, we had $1.9 billion of cash and equivalents and $3.5 billion of available committed bank credit under a revolving credit facility with an expiration date of April 27, 2027. We believe we have a manageable debt maturity profile, with approximately $500 million coming due beginning in 2025 through 2027. Furthermore, we have no financial covenants or material adverse change provisions in our bank agreements, and our debt maturities extend over a long period of time. We believe our cash on hand, cash flows generated from operations, and our available credit facility will provide sufficient liquidity to address the challenges and opportunities of the current market and our global cash needs, including capital expenditures, working capital investments, shareholder returns, if any, and contingent liabilities.

Guarantee agreements. In the normal course of business, we have agreements with financial institutions under which approximately $2.1 billion of letters of credit, bank guarantees, or surety bonds were outstanding as of March 31, 2023. Some of the outstanding letters of credit have triggering events that would entitle a bank to require cash collateralization; however, none of these triggering events have occurred. As of March 31, 2023, we had no material off-balance sheet liabilities and were not required to make any material cash distributions to our unconsolidated subsidiaries.

Credit ratings. Our credit ratings with Standard & Poor’s (S&P) remain BBB+ for our long-term debt and A-2 for our short-term debt, with a stable outlook. Our credit ratings with Moody’s Investors Service (Moody's) remain Baa1 for our long-term debt and P-2 for our short-term debt, with a stable outlook.

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Table of Contents						Part I. Item 2 \| Liquidity and Capital Resources

Customer receivables. In line with industry practice, we bill our customers for our services in arrears and are, therefore, subject to our customers delaying or failing to pay our invoices. In weak economic environments, we may experience increased delays and failures to pay our invoices due to, among other reasons, a reduction in our customers’ cash flow from operations and their access to the credit markets, as well as unsettled political conditions.

Receivables from our primary customer in Mexico accounted for approximately 11% of our total receivables as of March 31, 2023. While we have experienced payment delays in Mexico, these amounts are not in dispute and we have not historically had, and we do not expect, any material write-offs due to collectability of receivables from this customer.

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Table of Contents						Part I. Item 2 \| Business Environment and Results of Operations

BUSINESS ENVIRONMENT AND RESULTS OF OPERATIONS

We operate in more than 70 countries throughout the world to provide a comprehensive range of services and products to the energy industry. Our revenue is generated from the sale of services and products to major, national, and independent oil and natural gas companies worldwide. The industry we serve is highly competitive with many substantial competitors in each segment of our business. During the first three months of 2023, based upon the location of the services provided and products sold, 47% of our consolidated revenue was from the United States, compared to 43% of our consolidated revenue from the United States in the first three months of 2022. No other country accounted for more than 10% of our revenue.

Activity within our business segments is significantly impacted by spending on upstream exploration, development, and production programs by our customers. Also impacting our activity is the status of the global economy, which impacts oil and natural gas consumption.

Some of the more significant determinants of current and future spending levels of our customers are oil and natural gas prices and our customers' expectations about future prices, global oil supply and demand, completions intensity, the world economy, the availability of capital, government regulation, and global stability, which together drive worldwide drilling and completions activity. Additionally, during 2023, we generally expect that many of our customers in North America will continue their strategy of operating within their cash flows and generating returns rather than prioritizing production growth. Lower oil and natural gas prices usually translate into lower exploration and production budgets and lower rig count, while the opposite is usually true for higher oil and natural gas prices. Our financial performance is therefore significantly affected by oil and natural gas prices and worldwide rig activity, which are summarized in the tables below.

The table below shows the average prices for WTI crude oil, United Kingdom Brent crude oil, and Henry Hub natural gas.


		Three Months Ended March 31				Year Ended December 31
		2023		2022		2022
Oil price - WTI (1)		$	76.08	$	94.45	$	96.04
Oil price - Brent (1)		81.17		100.30		100.78
Natural gas price - Henry Hub (2)		2.65		4.66		6.29

(1)	Oil price measured in dollars per barrel.
(2)	Natural gas price measured in dollars per million British thermal units (Btu), or MMBtu.

The historical average rig counts based on the weekly Baker Hughes rig count data were as follows:


	Three Months Ended March 31		Year Ended December 31
	2023	2022		2022
U.S. Land	744	619		708
U.S. Offshore	16	16		15
Canada	221	198		175
North America	981	833		898
International	915	823		851
Worldwide total	1,896	1,656		1,749

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Table of Contents						Part I. Item 2 \| Business Environment and Results of Operations

Business outlook

According to the United States Energy Information Administration (EIA) April 2023 "Short Term Energy Outlook", the Brent spot price is expected to average $86 per barrel for the second quarter of 2023, with an expected full year 2023 average of $85 per barrel, a decline of approximately $16 per barrel, or 16%, as compared to the full year 2022 average. The 2023 forecasted Brent spot price reflects a forecast for less global production in 2023 and a relatively unchanged outlook for global oil consumption. According to the EIA, WTI prices are expected to average $80 per barrel in the second quarter of 2023 and $79 per barrel for the full year 2023, resulting in a decrease of approximately $16 per barrel, or 17%, compared to the full year 2022.

The EIA April 2023 “Short Term Energy Outlook” projects Henry Hub natural gas prices to average $2.65 per MMBtu during the second quarter of 2023, and average $2.94 per MMBtu for the full year 2023.

Per the International Energy Agency (IEA) April 2023 "Oil Market Report", the forecasted global oil demand is set to average 101.9 million barrels per day in 2023, an approximate 2.0 million barrels per day increase from 2022. The EIA projects crude oil production in the United States will average 12.54 million barrels per day in 2023, a 5% increase from the average 11.88 million barrels per day in 2022, and to average 12.75 million barrels per day in 2024, an increase of 2% from 2023.

We continue to expect that oil and gas demand will grow over the next several years, despite the actions taken by central banks in an attempt to control inflation by increasing interest rates and the resulting concern about a potential economic slowdown. We believe the demand will be driven by economic expansion, energy security concerns, relaxed COVID restrictions in China, and population growth. We believe many years of increased investment in existing and new sources of production is the only solution to increase supply and that production will be needed from conventional and unconventional, deep-water and shallow-water, and short and long-cycle projects.

Internationally, we expect exploration and production activity to grow 17-19% during 2023 compared to 2022, with most new activity coming from the Middle East, Asia and Latin America, both onshore and offshore. In North America, we expect strong activity and anticipate customer spending to increase by at least 15% during 2023 as compared to 2022.

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Table of Contents			Part I. Item 2 \| Results of Operations in 2023 Compared to 2022 (QTD)

RESULTS OF OPERATIONS IN 2023 COMPARED TO 2022

Three Months Ended March 31, 2023 Compared with Three Months Ended March 31, 2022


	Three Months Ended March 31				Favorable		Percentage
Millions of dollars	2023		2022		(Unfavorable)		Change
Revenue:
By operating segment:
Completion and Production	$	3,409	$	2,353	$	1,056	45	%
Drilling and Evaluation	2,268		1,931		337		17
Total revenue	$	5,677	$	4,284	$	1,393	33	%
By geographic region:
North America	$	2,765	$	1,925	$	840	44	%
Latin America	915		653		262		40
Europe/Africa/CIS	662		677		(15)		(2)
Middle East/Asia	1,335		1,029		306		30
Total revenue	$	5,677	$	4,284	$	1,393	33	%

SEC Form 10-Q filed by Halliburton Company