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Rating Action:

Moody's changes Halliburton's outlook to stable

23 Sep 2014

Approximately $7.8 billion of rated debt securities affected

New York, September 23, 2014 -- Moody's Investors Service affirmed Halliburton Company's (Halliburton) A2 rating and its Prime-1 commercial paper rating, and changed the outlook to stable from negative.

"The stable outlook reflects Halliburton's improved financial performance, lower trending leverage profile and positive cash flow generation to fund capital spending and dividend payouts, leaving free cash flow to fund its share repurchase authorization," commented Andrew Brooks, Moody's Vice President. "Importantly, Halliburton has also made significant progress in limiting its Macondo related liabilities, having reached a settlement agreement with plaintiffs stemming from the multi-district litigation (MDL), and having its conduct found by the Court not to have been grossly negligent."

Outlook Actions:

..Issuer: Halliburton Company

....Outlook, Changed To Stable From Negative

..Issuer: Halliburton Capital Trust I

....Outlook, Changed To Stable From Negative

Affirmations:

..Issuer: Halliburton Capital Trust I

....Pref. Stock Shelf (Local Currency), Affirmed (P)A3

..Issuer: Halliburton Company

.... Commercial Paper (Local Currency), Affirmed P-1

....Subordinate Shelf (Local Currency), Affirmed (P)A3

....Junior Subordinate Shelf (Local Currency), Affirmed (P)A3

....Preferred Shelf (Local Currency), Affirmed (P)A3

....Senior Unsecured Medium-Term Note Program (Local Currency), Affirmed (P)A2

....Senior Unsecured Regular Bond/Debentures (Local Currency), Affirmed A2

....Senior Unsecured Shelf (Local Currency), Affirmed (P)A2

RATINGS RATIONALE

Halliburton's A2 senior unsecured rating reflects its leading market position across many phases of the oil and gas production life cycle. The company's size, scale, and operational diversification cushion earnings and cash flow volatility, despite its concentration in North American markets that have been pressured by lower natural gas prices, cyclical drilling activity and a moderating over-supply condition in pressure pumping equipment.

In July 2014, Halliburton increased its share repurchase authorization to $6.0 billion from $5.0 billion, effectively targeting 10% of its market capitalization. This follows the company's debt-financed $4.4 billion share repurchases in 2013. Halliburton also targets a dividend payout of 15%-20% of net income, paying out $254 million in dividends in the first half of 2014. Moody's views the company's increased share repurchase activity and dividend payout as aggressive given the oil field service cyclicality to which it is exposed, however, the significant progress recently achieved by Halliburton in containing its Macondo-related liabilities now affords the company greater latitude in returning cash to shareholders. Halliburton's cash flow from operations will more than fund its capital spending and dividend payouts, leaving free cash flow to fund its increased share repurchase program. Including Moody's standard capitalized lease adjustment, at June 30, 2014 Halliburton had an adjusted debt balance of $12.8 billion, equating to a 2.0x debt/EBITDA leverage metric, down from 2.1x at December 31, 2013. Moody's projects Halliburton's debt/EBITDA ratio to remain below 2.0x through mid-2015, reflective of its improved financial performance.

On September 2, Halliburton reached an approximate $1.1 billion agreement to settle a substantial majority of plaintiffs' claims filed against the company following the Macondo incident. Subject to US District Court approval, the settlement will be paid in three installments over the next two years. Halliburton had previously booked an MDL loss contingency of $1.3 billion, which will fully cover the cost of the settlement. On September 4, the US District Court ruled on Phase 1 of the MDL proceedings, finding that Halliburton's conduct did not constitute gross negligence, which should absolve the company of punitive damage claims. The Court also reaffirmed that BP p.l.c. (BP, A2 negative) remains contractually obligated to indemnify Halliburton with respect to compensatory damage claims. The plaintiffs' settlement together with the favorable Court ruling would appear to significantly contain any further Macondo risk.

Halliburton's operations are more concentrated in North America than its top two peers, where it generated approximately 53% of revenues and 59% of operating income in the first half of 2014. Characterized by increased service intensity stemming from longer lateral, horizontal well lengths with higher completion stage counts, North American revenues and operating income both increased about 10% in the first half of 2014 compared to the first half of 2013. Despite flat margins with pricing improvements remaining elusive, Halliburton is positioned to realized improved margins over the next 12-18 months amid higher activity levels, increasing service intensity and limited new capacity additions while leveraging its strong market position, exposure to higher-return, oil-focused basins and broad product diversity.

Outside North America, Halliburton's international operations remain mixed. In Latin America, revenues fell 7% in the first half of 2014 compared to the year-ago period with operating income down over 23%. The outlook heading into 2015 remains challenging given project delays in Mexico (Pemex, A3 stable) and Brazil (Petrobras, Baa1 negative) with the prospects for comprehensive energy reform providing a potential positive catalyst over the longer-term. Somewhat offsetting the extended headwinds in Latin America, Halliburton's operations in the Eastern Hemisphere continue to exhibit positive trends led by increased activity in Saudi Arabia. Still, the potential for activity disruptions or extended project delays in Iraq and Russia raise execution risk over the next 12-18 months. The rising political tensions in these regions have had a minimal impact on Halliburton's financial results through the first half of 2014, and management remains steadfast on executing its long-term business strategy focused on its three pillar approach to capitalize on growth opportunities across mature fields, unconventional resource and deepwater plays.

Halliburton has good liquidity. As of June 30, the company had $2.4 billion of cash and marketable securities and full availability under its $3.0 billion senior unsecured revolving credit facility, which has an April 2018 scheduled maturity. Maintaining good liquidity is important to Halliburton's A2 rating given its increased leverage profile. Moody's expects Halliburton to generate about $1.3 billion of free cash flow in 2014 after dividends and $3.3 billion capital expenditures. Halliburton has no debt maturities until August 2016 when $600 million of senior notes are scheduled to mature.

The outlook is stable. Improved and consistent operating results leading to competitive metrics relative to its peers, reduced financial leverage, and sustaining retained cash flow (RCF) to debt over 40% could lead to an upgrade. Additional debt funded share repurchases or acquisitions and/or a significant deterioration in earnings could results in a ratings downgrade. Debt/EBITDA sustained above 2.5x in cyclically weak earnings environment would pressure the ratings.

The principal methodology used in these ratings was Global Oilfield Services Rating Methodology published in December 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Halliburton Company, headquartered in Houston, Texas, is a leading provider of services and products in the energy industry related to the exploration, development and production of oil and natural gas.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Andrew Brooks
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's changes Halliburton's outlook to stable
No Related Data.
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