Halliburton sees broadening of recovery in energy business demand

Halliburton, the world's biggest oilfield services company, is seeing a gradual broadening of recovery in demand at its core upstream energy business, CEO Dave Lesar said. Lesar, who took over the top job at Halliburton from US Vice President Dick Cheney last August, said he is also hopeful that the company's troubled engineering and construction business is poised for an upswing in operating income in 2002.
Lesar said Halliburton is continuing to benefit from strong demand for its services from oil and gas companies in North America. Business was also good in some Latin American countries such as Mexico, Brazil and Argentina, he said, while West African markets such as Nigeria and Angola were also starting to recover after a long slump caused by the collapse of oil prices in 1998.
Although such evidence is in line with industry expectations of a broadening of oil and gas exploration and production activity beyond North America, markets such as the North Sea, the Middle East and Asia, remained sluggish, Lesar said. "Right now the market is about where we thought it would be, but we still have to hold our breath and see whether the international market will come back as strong as we and our customers and competitors all think it's going to," he said.
Lesar said Halliburton's engineering and construction business should see orders start to pick up again towards the end of this year and into 2002, with operating income picking up next year as the company starts to work off the new orders. "I would say that we've certainly hit bottom and that we've crawled off the bottom at this point in time," he said.

The company's engineering and construction business posted an operating loss of $ 99 mm in the fourth quarter of 2000 after a pre-tax charge of $ 134 mm to cover reorganization costs and project losses. Halliburton has said it expects engineering and construction to make an operating profit equal to 3 % of revenues in 2001 and 3 to 5 % thereafter.
Lesar said the engineering and construction business had suffered because a recent wave of mergers and acquisitions among big oil and gas companies had led to postponement of investment in downstream facilities such as oil refineries, petrochemical plants and LNG facilities. As oil company investment picked up again in response to recent strength in oil and gas prices, it was focused more on upstream exploration and production activity, he said.
Lesar said there was no question of Halliburton selling or spinning off its engineering and construction business under current weak market conditions. The company would continue to review its business portfolio, but the case for divesting engineering and construction was likely to become less persuasive as its markets improved, he said. "I think that when things recover, people will start to appreciate the kind of return on capital, the cash flow and the earnings contribution that it can make and I think they'll see that it really fits nicely into the organization," he said.

Lesar said Halliburton would continue to make niche acquisitions, particularly in areas that would complement the operations of its Landmark Graphics unit that supplies software and services to transform geophysical data into computer models of oil and gas reserves. "I think you'll see us continue to look at expanding Landmark's portfolio of assets because it's been so successful and the management of data has become so important to our customers," he said. In January, for example, Halliburton paid $ 175 mm in cash to acquire a unit of Petroleum Geo-Services that provides storage and Internet-based access and retrieval of large volumes of exploration and production data.
Lesar said that like his predecessor Cheney, he was strongly opposed to unilateral US sanctions that prevent US companies from doing business in Iran and Libya and optimistic that they would eventually be lifted by the Bush administration. "We're hopeful that unilateral sanctions will get lifted later this year," he said. "We will be active in thosemarkets when cleared to do so and certainly would anticipate being very aggressive in terms of getting back in, when and if sanctions get lifted."