Halliburton 2009 Annual Report Download - page 35

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WTI oil spot prices fell from a high of approximately $145 per barrel in July 2008 to a low of
approximately $30 per barrel in December 2008. Since then prices have rebounded. As noted above,
during 2009, the WTI spot price averaged $61.65 per barrel. As of February 12, 2010 the WTI oil spot
price was $74.13 per barrel. According to the International Energy Agency’s (IEA) February 2010 “Oil
Market Report,” 2010 world petroleum demand is forecasted to increase 2% over 2009 levels. Despite the
overall decline in oil and natural gas prices from 2008 levels and reduction in our customers’ capital
spending, we believe that, over the long term, any major macroeconomic disruptions may ultimately correct
themselves as the underlying trends of smaller and more complex reservoirs, high depletion rates, and the
need for continual reserve replacement should drive the long-term need for our services.
North America operations
Volatility in natural gas prices can impact our customers' drilling and production activities,
particularly in North America. In 2009, we experienced an unprecedented decline in drilling activity as rig
count dropped approximately 43% from 2008 highs. Correlating with this decline, the Henry Hub spot
price decreased from an average of $9.13 per mcf in 2008 to $4.06 per mcf in 2009. As of February 12,
2010, the Henry Hub spot price was $5.65 per mcf. Weak domestic natural gas demand, coupled with the
productivity of new shale resources, led to natural gas storage reaching record levels in 2009 and severe
margin compression. We saw some rebound in rig activity toward the end of 2009 as conditions began to
improve with seasonal withdrawals from natural gas storage. With the trend toward increasing levels of
service intensity, our equipment utilization is improving, and prices are stabilizing across many areas.
However, this rebound will require a sustained increase in natural gas drilling activity. For activity levels
to improve, we believe it will be important that North America exits the winter heating season with storage
levels in line with historical averages and there is increased recovery in industrial demand.
International operations
Consistent with our long-term strategy to grow our operations outside of North America, we
expect to continue to invest capital in our international operations. During 2009, international energy
services activity declined as well, but not to the extent the North American market fell. As of December
31, 2009, the international rig count had declined approximately 8% from 2008 highs. International
margins declined throughout 2009, and we have not yet felt the full impact of pricing concessions that were
renegotiated during last year’s contract retendering process. As such, we believe margins will continue to
be under pressure in 2010. We also believe that 2010 may be a period of transition for this market. Oil
supply/demand fundamentals are showing some improvement as weak global hydrocarbon demand shows
signs of recovery, but the timing of reinvestment remains uneven across geographies and customers.
Operators are remaining flexible in their spending patterns and continue to be heavily focused on
restraining oilfield price and cost inflation.
Venezuela. In January 2010, the Venezuelan government announced a devaluation of the Bolívar
Fuerte under a new two-exchange rate system; one rate for essential products and the other rate for non-
essential products. As a result of the devaluation, we are estimating a loss of approximately $30 million in
the first quarter of 2010 based on our current understanding of how the new two-exchange rate system will
work for oil services activity. Our estimate utilizes a 4.3 Bolívar Fuerte to United States dollar exchange
rate.