Halliburton 2013 Annual Report Download - page 36

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HALLIBURTON COMPANY
Management’s Discussion and Analysis of Financial Condition and Results of Operations
EXECUTIVE OVERVIEW
Financial results
During 2013, we produced revenue of $29.4 billion and operating income of $3.1 billion, reflecting an operating
margin of 11%. Revenue increased $0.9 billion, or 3%, from 2012, mainly due to increased activity in all of our international
regions and the Gulf of Mexico. We set new revenue records this year in all of our international regions and in both of our
divisions. Additionally, during 2013, our revenue outside of North America comprised 48% of consolidated revenue. The
percentage of our revenue that relates to our international operations has been steadily increasing and is representative of our
ongoing strategy to grow our international business and balance our geographic mix. Our increase in international activity and
revenue was partially offset by lower activity levels and pricing pressure in the United States land market, primarily for
production enhancement services. Operating income in 2013 was negatively impacted by a $1.0 billion, pre-tax, Macondo-
related loss contingency, as compared to a $300 million, pre-tax, Macondo-related loss contingency in 2012.
Business outlook
We continue to believe in the strength of the long-term fundamentals of our business. Energy demand is expected to
increase over the long term driven by economic growth in developing countries despite current underlying downside risks in the
industry, such as sluggish growth in developed countries and uncertainties associated with geopolitical tensions in the
Middle East and North Africa. Furthermore, development of new resources is expected to be more complex, resulting in
higher service intensity as our customers move increasingly to horizontal drilling.
In North America, we continue to experience pricing pressures, which have impacted our margins. However, we
believe the current environment and our focus on efficient cost structure continues to favor us. As a result of the industry's
activity shift from natural gas plays to oil and liquids-rich basins, operators have been allocating their budgets to basins with
better economics. In addition, we are observing a meaningful switch to multi-well pad activity among our customer base, which
is resulting in increased drilling and completion service efficiency. We believe the incremental efficiency gains provided by
multi-well pad drilling will enable us to leverage our operational scale and expertise.
Outside of North America, both revenue and operating income increased in 2013 compared to 2012. We believe that
international growth in 2014 will come from volume increases as we deploy resources on our recent contract wins and new
projects, continued improvement in markets where we have made strategic investments, the introduction of new technology,
and increased pricing and cost recovery on select contracts. We also believe that international unconventional oil and natural
gas, mature field, and deepwater projects will contribute to activity improvements over the long term, and we plan to leverage
our extensive experience in North America to capitalize on these opportunities. Consistent with our long-term strategy to grow
our operations outside of North America, we also expect to continue to invest in capital equipment for our international
operations. In Latin America, we expect 2014 to be a challenging year due to a decline in existing integrated project
management work in Mexico as we begin transitioning to newly-tendered projects, and due to reduced activity in Brazil.
However, this does not change our long-term outlook for Latin America, which we expect to contribute significantly to our
future growth and profitability.