Fitch Affirms Halliburton's IDR at 'A-'; Outlook Stable
CHICAGO -- November 30, 2012
Fitch Ratings has affirmed Halliburton Company's (Halliburton; NYSE: HAL)
Issuer Default Rating (IDR) at 'A-' and senior unsecured ratings at 'A-', as
--Issuer Default Rating (IDR) at 'A-';
--Senior unsecured notes/debentures at 'A-';
--Senior unsecured bank facility at 'A-';
--Short-term IDR at 'F2';
--Commercial paper at 'F2'.
The Rating Outlook is Stable. Approximately $4.8 billion in total debt is
Halliburton's ratings are supported by the company's leading position in the
energy services sector, its geographic and operational diversity, growing
contributions from international operations, and its strong credit profile.
Offsetting factors include the rig count declines in North America over the
last 12 months and a cyclical downturn in margins for pressure pumping, the
risk of persistent oversupply in the North American pressure pumping market in
a downside oil price scenario, and the potential for increased leverage to
Leverage and Liquidity
For the quarter ending Sept. 30, 2012, Halliburton generated latest 12-months'
(LTM) EBITDA of approximately $6.2 billion and finished the period with debt
of $4.8 billion. As a result, debt-to-EBITDA is currently at 0.78x and
interest coverage is 21.0x. LTM free cash flow (FCF) is negative $410 million
due to large increases in working capital and high capex.
Halliburton maintains liquidity from cash and equivalents ($2 billion at Sept.
30, 2012); its $2 billion credit facility; and generation of operating cash
flows ($3.2 billion for the LTM ending Sept. 30, 2012). Current debt
maturities are very light with nothing due until 2017.
EBITDA levels for the company are expected to remain relatively robust but
weaken over the next few quarters due to weakness in the U.S. land market and
the lag in resolution of supply cost inflation.
Improvements in international drilling activity levels, continued growth in
drilling in the U.S. Gulf of Mexico, and a rebound in natural gas prices
driving growth in the total rig count for North America remain sources of
Current oil prices remain well above Fitch's long-term midcycle expectations.
While prices could rise higher for non-fundamental reasons (rising
geopolitical risk premium, inflation hedge), Fitch believes that risks to oil
prices on the downside remain significant. Fitch expects natural gas related
drilling to remain under pressure as current natural gas prices remain under
$4.00 per thousand cubic feet (mcf).
Capital expenditures for 2012 are now expected to be approximately $3.4
billion as the company remains committed to international expansion. Looking
forward, capex levels are expected to decrease modestly with less emphasis on
new equipment in North America. Fitch expects Halliburton to target spending
levels that should allow it to remain generally FCF neutral.
Beyond capital expenditures, the biggest other uses of cash will likely be M&A
opportunities and the company's common stock dividend payments. Halliburton
remains focused on growing its global footprint via acquisitions targeted at
niche technologies and/or acquisitions that increase the company's
geographical footprint. This strategy is evident in the 2010 'Boots & Coots'
deal and the 2011 'Multi-Chem' deal. Future targeted areas include electric
submersible pumps (ESPs) and artificial lift. In addition, share repurchases
could be considered given a lack of opportunities to grow the business via
capital expenditures or M&A opportunities.
Deepwater Horizon and Macondo Oil Spill
Halliburton provided cement and surface data logging services aboard the
Deepwater Horizon as it was drilling the Macondo well prior to the tragic
Fitch does not believe that Halliburton is likely to be exposed to the costs
associated with the BP oil spill in the U.S. Gulf of Mexico (GoM). Key to this
assumption is the indemnification that the company has from BP combined with
public disclosures about the course of events leading up to the accident which
point to key decisions made by BP. However, with the settlements between BP
and minority partners Anadarko and Mitsui Oil Exploration Co. ($4 billion and
$1.1 billion respectively), a settlement of claims between Halliburton and BP
is a potential scenario. The timeline and dollar amount of ultimate resolution
for Halliburton remain uncertain, but Fitch believes the company has the
balance sheet strength to absorb significant contingent liabilities at the
In April 2012, BP announced that it had reached definitive settlement
agreements with the Plaintiffs' Steering Committee (PSC) to resolve the
substantial majority of eligible private economic loss and medical claims
stemming from the Macondo well incident.
BP has estimated that the cost of the pending settlement would be
approximately $7.8 billion, including payments to claimants who opt out of the
settlement, administration costs, and plaintiffs' attorneys' fees and
expenses, and has stated that it is possible the actual cost could be higher
or lower. According to BP, the proposed settlement does not include claims
against BP made by the Dept. of Justice or other federal agencies or by states
and local governments.
BP has stated that the proposed settlement provides that, to the extent
permitted by law, BP will assign to the PSC certain of its claims, rights and
recoveries against Transocean and Halliburton for damages not recoverable from
Halliburton does not believe that its contract with BP Exploration permits the
assignment of certain claims to the PSC without its consent and plans to
object in court.
The initial phase of the Multi-District Litigation (MDL) trial currently
scheduled to commence on Feb. 25, 2013.
WHAT COULD TRIGGER A RATING ACTION
Positive: Future developments that may, individually or collectively, lead to
positive rating action include:
--A return to a stable or improving margin environment for North American
onshore activities, especially pressure pumping;
--Continued growth and margin improvement in international operations;
--Ultimate resolution of the Deepwater Horizon and Macondo oil spill
litigation on acceptable terms, in addition to other credit supportive
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
--A major drop in the North American rig count driven by significant and
persistent decreases in oil prices;
--Significantly leveraging share repurchase activity or major dividend
--A leveraging acquisition or failure to moderate capital spending levels in
2013 if commodity pricing and North American rig counts do not improve;
--Recognition of a major liability stemming from ultimate resolution of the
Deepwater Horizon and Macondo oil spill litigation.
Additional information is available at 'www.fitchratings.com'. The ratings
above were unsolicited and have been provided by Fitch as a service to
Applicable Criteria and Related Research:
-- 'Corporate Rating Methodology' (Aug. 8, 2012);
-- 'Short-Term Ratings Criteria for Non-Financial Corporates' (Aug. 8, 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology
Short-Term Ratings Criteria for Non-Financial Corporates
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