Halliburton 2011 Annual Report Download - page 58

43
HALLIBURTON COMPANY
Management’s Discussion and Analysis of Financial Condition and Results of Operations
EXECUTIVE OVERVIEW
Financial results
During 2011, we produced revenue of $24.8 billion and operating income of $4.7 billion,
reflecting an operating margin of 19%. Revenue increased $6.9 billion, or 38%, from 2010, while operating
income increased $1.7 billion, or 57%, from 2010. Overall, these increases were due to our customers’
higher capital spending throughout 2011, led by increased drilling activity in unconventional oil and natural
gas basins and pricing improvements in North America.
Business outlook
We continue to believe in the strength of the long-term fundamentals of our business. Despite
concerns about the global economy, energy demand is expected to continue to increase driven by growth in
emerging countries. Furthermore, development of new resources is expected to be more complex resulting
in increasing service intensity.
In North America, the United States land rig count and horizontal drilling activity has been
growing, led by a shift to oil and liquids-rich shale basins. We believe that natural gas drilling activity will
be under pressure until a natural gas oversupply situation is corrected; however, any reduction in natural
gas drilling may be offset by an increase in liquids-directed activity. Our 2011 Gulf of Mexico business
improved compared to 2010 due to the lifting of the deepwater drilling suspension in the fourth quarter of
2010 and a higher level of drilling permits issued in the second half of 2011. In the fourth quarter of 2011,
we saw revenue exceed levels experienced prior to the drilling suspension for the first time. Margins in the
Gulf of Mexico, while improving, are not expected to recover to pre-drilling suspension levels until the
second half of 2012, as our customers adapt to new regulations. See “Business Environment and Results of
Operations,” Note 8 to the consolidated financial statements, Item 3. “Legal Proceedings,” and Item 1(a),
“Risk Factors.”
Outside of North America, revenue for 2011 increased from the prior year, while our operating
income declined due to highly competitive service pricing in several markets. In the second half of 2011,
our operations in Egypt recovered from the turmoil experienced in the first quarter of 2011. Although we
have resumed some activity in Libya, any meaningful recovery depends on our customers’ ability to
reestablish operations. Despite the events that have transpired in the Middle East and North Africa and the
impact of lower service pricing negotiated during the worldwide recession, we expect gradual margin
improvement outside of North America during 2012 as activity continues to increase and new technologies
are introduced.
We have carried out several key initiatives in 2011. These initiatives involve increasing
manufacturing production in the Eastern Hemisphere and reinventing our service delivery platform to lower
our delivery costs.
Our operating performance and business outlook are described in more detail in “Business
Environment and Results of Operations.”
Financial markets, liquidity, and capital resources
Since mid-2008, the global financial markets have been somewhat volatile. While this has created
additional risks for our business, we believe we have invested our cash balances conservatively and secured
sufficient financing to help mitigate any near-term negative impact on our operations. For additional
information, see “Liquidity and Capital Resources” and “Business Environment and Results of
Operations.”