Halliburton 2015 Annual Report Download - page 30

13
natural gas industry, existing or future laws, regulations, treaties, or international agreements related to greenhouse gases and
climate change, including incentives to conserve energy or use alternative energy sources, could have a negative impact on our
business if such laws, regulations, treaties, or international agreements reduce demand for oil and natural gas. Likewise, such
restrictions may result in additional compliance obligations with respect to the release, capture, sequestration, and use of carbon
dioxide that could have a material adverse effect on our liquidity, consolidated results of operations, and consolidated financial
condition.
Trends in oil and natural gas prices affect the level of exploration, development, and production activity of our
customers and the demand for our services and products, which could have a material adverse effect on our business,
consolidated results of operations, and consolidated financial condition.
Demand for our services and products is particularly sensitive to the level of exploration, development, and production
activity of, and the corresponding capital spending by, oil and natural gas companies. The level of exploration, development,
and production activity is directly affected by trends in oil and natural gas prices, which historically have been volatile and are
likely to continue to be volatile.
Prices for oil and natural gas are subject to large fluctuations in response to relatively minor changes in the supply of
and demand for oil and natural gas, market uncertainty, and a variety of other economic factors that are beyond our control.
Crude oil prices have declined significantly since 2014, with West Texas Intermediate (WTI) oil spot prices declining from a
high of $108 per barrel in June 2014 to a low of $27 per barrel in January 2016, a level which has not been experienced since
2003. Crude oil prices are not forecast to improve significantly during 2016. We anticipate 2016 will be another challenging
year for us, as our customers continue to make downward revisions to their operating budgets. Therefore, we expect a
continued reduction in activity coupled with pricing pressures, and corresponding reductions in revenue and operating
performance in 2016. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of
Operations - Business Environment and Results of Operations.”
Any prolonged reduction in oil and natural gas prices will depress the immediate levels of exploration, development,
and production activity which could have a material adverse effect on our business, consolidated results of operations, and
consolidated financial condition. Should current market conditions worsen or persist for an extended period of time, we may be
required to record additional asset impairments, including an impairment of the carrying value of our goodwill. Such a potential
impairment charge could have a material adverse impact on our operating results. Even the perception of longer-term lower oil
and natural gas prices by oil and natural gas companies can similarly reduce or defer major expenditures given the long-term
nature of many large-scale development projects.
Factors affecting the prices of oil and natural gas include:
- the level of supply and demand for oil and natural gas, especially demand for natural gas in the United States;
- governmental regulations, including the policies of governments regarding the exploration for and production and
development of their oil and natural gas reserves;
- weather conditions and natural disasters;
- worldwide political, military, and economic conditions;
- the level of oil production by non-OPEC countries and the available excess production capacity within OPEC;
- oil refining capacity and shifts in end-customer preferences toward fuel efficiency and the use of natural gas;
- the cost of producing and delivering oil and natural gas; and
- potential acceleration of the development of alternative fuels.
Our business is dependent on capital spending by our customers, and reductions in capital spending could have a
material adverse effect on our business, consolidated results of operations, and consolidated financial condition.
Our business is directly affected by changes in capital expenditures by our customers, and reductions in their capital
spending could reduce demand for our services and products and have a material adverse effect on our business, consolidated
results of operations, and consolidated financial condition. Some of the items that may impact our customer's capital spending
include:
- oil and natural gas prices, including volatility of oil and natural gas prices and expectations regarding future prices;
- the inability of our customers to access capital on economically advantageous terms;
- the consolidation of our customers;
- customer personnel changes; and
- adverse developments in the business or operations of our customers, including write-downs of reserves and
borrowing base reductions under customer credit facilities.
As a result of the decreases in commodity prices, many of our customers reduced capital spending in 2015 and have
continued a reduction in their capital spending budgets for 2016. We expect that further reductions in commodity prices or
prices remaining at current levels for a prolonged period of time may result in further capital budget reductions in the future.