HALLIBURTON CO

RESULTS OF OPERATIONS IN 2024 COMPARED TO 2023

Three Months Ended September 30, 2024 Compared with Three Months Ended September 30, 2023

Operating Segments

Completion and Production

Completion and Production revenue in the third quarter of 2024 was $3.3 billion, a decrease of $188 million, or 5%, when compared to the third quarter of 2023. Operating income in the third quarter of 2024 was $669 million, a decrease of $77 million, or 10%, when compared to the third quarter of 2023. These results were largely driven by decreased stimulation activity in the Western Hemisphere and lower completion tool sales in the Gulf of Mexico, the Caspian Area and the North Sea. Partially offsetting these decreases were increased pressure pumping services in Canada, the Gulf of Mexico, and the Middle East, improved cementing activity in Latin America and Europe, and higher completion tool sales in Saudi Arabia.

Drilling and Evaluation

Drilling and Evaluation revenue in the third quarter of 2024 was $2.4 billion, an increase of $81 million, or 3%, when compared to the third quarter of 2023. Operating income in the third quarter of 2024 was $406 million, an increase of $28 million, or 7%, when compared to the third quarter of 2023. These results were primarily driven by increased drilling services in the Western Hemisphere and Middle East/Asia, improved project management activity in Ecuador, Mexico and Kuwait, and higher testing services in Middle East/Asia and Latin America. Partially offsetting these improvements were decreased fluid services in the Gulf of Mexico and Eastern Hemisphere, and lower wireline activity in the Gulf of Mexico and Africa.

Geographic Regions

North America

North America revenue in the third quarter of 2024 was $2.4 billion, a 9% decrease compared to the third quarter of 2023. This decline was primarily driven by lower pressure pumping services and decreased well intervention services in U.S. land. Additionally, there was decreased activity across multiple product services lines in the Gulf of Mexico partly due to the impacts from hurricanes. Partially offsetting these declines were improved pressure pumping services in Canada and the Gulf of Mexico, along with increased drilling services in the region.

Latin America

Latin America revenue in the third quarter of 2024 was $1.1 billion, flat compared to the third quarter of 2023. Increased well construction activity and improved project management activity in Ecuador and Mexico were offset by decreased completion tool sales in Brazil, lower stimulation activity in Argentina and Brazil, and lower project management and well construction activity in Colombia.

Europe/Africa/CIS

Europe/Africa/CIS revenue in the third quarter of 2024 was $722 million, a 2% decrease compared to the third quarter of 2023. This decrease was primarily driven by lower drilling-related services in the North Sea, decreased completion tool sales in the Caspian Area and the North Sea, and declined wireline activity in Africa. Partially offsetting these declines were improved cementing and higher project management activity in the North Sea, along with increased well intervention services in the region.

Middle East/Asia

Middle East/Asia revenue in the third quarter of 2024 was $1.5 billion, a 9% increase compared to the third quarter of 2023. This increase resulted from increased activity across multiple product service lines in Kuwait and Australia, improved pressure pumping services and higher completion tool sales in Saudi Arabia, higher well construction activity in United Arab Emirates, and increased testing services in the region. Partially offsetting these improvements were lower fluid services in Saudi Arabia and Indonesia.

Other Operating Items

SAP S4 Upgrade Expense. During 2023, we began our migration to SAP S4, which we now expect to complete in the first half of 2026. During the third quarter of 2024, we recognized $28 million of expense on our SAP S4 migration. During the third quarter of 2023, we recognized $23 million of expense on our SAP S4 migration.

Impairments and Other Charges. During the three months ended September 30, 2024, we took a pre-tax charge of $116 million primarily related to severance costs, an impairment of assets held for sale, expenses related to a cybersecurity incident, a gain on a fair value adjustment of an equity investment, and other items. See Notes to Condensed Consolidated Financial Statements, Note 2. Impairments and Other Charges for further discussion of these charges.

Nonoperating Items

Income Tax Provision. During the three months ended September 30, 2024, we recorded a total income tax provision of $154 million on a pre-tax income of $734 million, resulting in an effective tax rate of 21.0% for the quarter. We recorded a tax benefit of $41 million during the three months ended September 30, 2024, due to a partial release of a valuation allowance on our deferred tax assets based on market conditions. During the three months ended September 30, 2023, we recorded a total income tax provision of $192 million on a pre-tax income of $916 million, resulting in an effective tax rate of 21.0% for the quarter.

Pillar Two. The Organization for Economic Co-operation and Development 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. These rules did not have a material impact on our taxes for the three months ended September 30, 2024.

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 2023, including carry back of 2016 net operating losses to 2014, are currently under review or remain open for review by the IRS.

On September 28, 2023, we received a NOPA from the IRS covering our 2016 U.S. 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 twelve 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.