HALLIBURTON CO

RESULTS OF OPERATIONS IN 2023 COMPARED TO 2022

Operating Segments

Completion and Production

Completion and Production revenue was $13.7 billion in 2023, an increase of $2.1 billion, or 18%, compared to 2022. Operating income was $2.8 billion in 2023, a 39% increase from $2.0 billion in 2022. These results were primarily driven by higher pressure pumping activity in North America land, as well as improved completion tool sales globally. Partially offsetting these increases was decreased activity in Russia due to our exit from the country.

Drilling and Evaluation

Drilling and Evaluation revenue was $9.3 billion in 2023, an increase of $614 million, or 7%, from 2022. Operating income was $1.5 billion in 2023, an increase of $251 million, or 19%, compared to 2022. These results were primarily attributable to increased fluid services and drilling activity globally and higher wireline activity in the Western Hemisphere, Africa, and the Middle East/Asia. Partially offsetting these increases were decreased activity in Russia due to our exit from the country and lower project management activity in Saudi Arabia.

Geographic Regions

North America

North America revenue was $10.5 billion in 2023, a 9% increase compared to 2022, resulting from improved pressure pumping and artificial lift activity in North America land, increased fluid and wireline services across the region, and higher completion tool sales in the Gulf of Mexico. Partially offsetting these increases were lower drilling-related activity and decreased well intervention services in North America land.

Latin America

Latin America revenue was $4.0 billion in 2023, a 25% increase compared to 2022, resulting from improvements across multiple product service lines in Brazil, Mexico, and Argentina. Partly offsetting these increases was lower project management activity in the Caribbean, Ecuador, and Colombia.

Europe/Africa/CIS

Europe/Africa/CIS revenue was $2.9 billion in 2023, a 6% increase compared to 2022, resulting from increased activity across multiple product service lines in Africa and higher drilling-related services in Norway. Partially offsetting these increases were the sale of our Russian operations during the third quarter of 2022, as well as decreased wireline activity, lower completion tool sales and decreased testing services in Norway, and lower drilling-related activity and decreased testing services in Algeria.

Middle East/Asia

Middle East/Asia revenue was $5.7 billion in 2023, an 18% increase compared to 2022, resulting from increased activity across multiple product service lines in Saudi Arabia, the United Arab Emirates, Qatar, Indonesia, and Malaysia, and higher drilling services and improved wireline activity in Thailand. Partially offsetting these improvements were lower project management activity in Saudi Arabia and lower stimulation activity and decreased well intervention services in Kuwait.

Other Operating Items

Impairments and other charges. During 2023, there were no amounts recorded in impairment and other charges. During 2022, we recognized $366 million of charges, primarily related to a $344 million write down of all our net assets in Russia as a result of our decision to sell our Russia operations due to the sanctions enacted against Russia arising from the conflict in Ukraine. See Note 2 to the consolidated financial statements for further discussion on these charges.

SAP S4 Upgrade Expense. As previously mentioned, in the second quarter of 2023 we began our migration to SAP S4, which we expect to complete by the end of 2025. In 2023, we recognized $51 million of expense on our SAP S4 migration.

Nonoperating Items

Argentina Blue Chip Swap. The Central Bank of Argentina maintains currency controls that limit our ability to access U.S. dollars in Argentina and remit cash from our Argentine operations. The execution of certain trades known as Blue Chip Swaps, effectively results in a parallel U.S. dollar exchange rate. This parallel rate, which cannot be used as the basis to remeasure our net monetary assets in U.S. dollars under U.S. GAAP, was 20% higher than Argentina's official exchange rate at December 31, 2023. For the year ended December 31, 2023, we entered into Blue Chip Swap transactions, which resulted in a $110 million pre-tax loss on investment.

Argentina Currency Impact. Argentina devalued its peso by more than 50% during December 2023. Consequently, we incurred a loss of $131 million for the year ended December 31, 2023 due to the devaluation of the currency in Argentina.

Loss on early extinguishment of debt. During the year ended December 31, 2022, we recorded a $42 million loss on the early redemption of $600 million aggregate principal amount of our 3.8% senior notes due November 2025, which included premiums and unamortized expenses. See Note 10 to the consolidated financial statements for further information.

Income tax provision. During the year ended December 31, 2023, we recorded a total income tax provision of $701 million on pre-tax income of $3.4 billion, resulting in an effective tax rate of 20.8%. The effective tax rate for 2023 was primarily impacted by our geographic mix of earnings, tax adjustments related to the reassessment of prior year tax accruals, and changes of valuation allowance on some of our deferred tax assets. During 2022, we recorded a total income tax provision of $515 million on pre-tax income of $2.1 billion, resulting in an effective tax rate of 24.4%. See Note 12 to the consolidated financial statements for significant drivers of these tax provisions.

Pillar Two. The OECD recently enacted model rules for a new global minimum tax framework, also known as Pillar Two, and certain governments globally have enacted, or are in the process of enacting, legislation considering these model rules. We have considered the possible implication of the legislation passed or in consideration of being passed, and we do not believe these rules will have a material impact on our taxes in the near future.

Internal Revenue Service Notice of Proposed Adjustment. We are subject to taxes in the United States and in numerous jurisdictions where we operate or where our subsidiaries are organized. Our tax returns are routinely subject to examination by the taxing authorities in the jurisdictions where we file tax returns. In most cases we are no longer subject to examination by tax authorities for years before 2012. The only significant operating jurisdiction that has tax filings under review or subject to examination by the tax authorities is the United States. Our United States federal income tax filings for tax years 2016 through 2022, including carry back of 2016 net operating losses to 2014, are currently under review or remain open for review by the Internal Revenue Service (the IRS).

On September 28, 2023, we received a Notice of Proposed Adjustment (NOPA) from the IRS covering our 2016 US tax return. The NOPA proposed an adjustment to reclassify approximately 95% of the $3.5 billion termination fee paid to Baker Hughes in 2016 from an ordinary expense deduction to a capital loss. The termination fee was paid to Baker Hughes under the merger agreement after antitrust regulators in multiple jurisdictions failed to approve our proposed merger. It is common commercial practice to include a termination fee in a merger agreement to compensate the target for damages incurred when the acquisition does not go forward. The IRS’s long-understood position at the time of the payment had been to treat such payments as an ordinary and necessary business expense. We strongly disagree with the proposed adjustment on both a factual and legal basis, and we plan to vigorously contest it.

We expect that resolving this dispute will take substantial time. In December 2023, we initiated the IRS administrative appeals process, which may take more than 12 months to complete. Failing a resolution through that process, the matter would ultimately be resolved by the United States federal courts.

We regularly assess the likelihood of adverse outcomes resulting from tax examinations to determine the adequacy of our tax reserves, and we believe our income tax reserves are appropriately provided for all open tax years. We cannot assure you that the matter will be determined in our favor or against us, and if the matter is ultimately determined unfavorably to us, it could have a material adverse impact on our results of operations and cash flows. Based on tax attributes currently available, we estimate that, should the IRS's position prevail through its appellate process and subsequent litigation, the proposed adjustment could result in cash taxes due of approximately $650 million (plus interest thereon in the case of amounts due for previous tax years). Our estimates are calculated under current tax law and on the bases of our assumptions regarding taxable income and loss and other tax attributes over the relevant period, which law could change and which assumptions could and likely will differ materially from actual results. In any event, no payment of any additional tax is currently required, nor do we anticipate that the proposed adjustment would materially and adversely impact our ability to meet our expected uses of cash, including future capital expenditures, working capital investments, and scheduled debt repayments, or our ability to return cash to shareholders, even if a final determination of the matter is reached that is adverse to us.