10-Q: Halliburton Q3 Profit Plunges Amid Market Softness, Charges

Halliburton Company reported a significant decline in third-quarter 2025 net income and revenue, impacted by increased impairments, higher tax provisions, and a softening oil and gas market.

Summary

• Total revenue for the third quarter of 2025 decreased by 2% to $5.6 billion compared to $5.7 billion in Q3 2024.
• Operating income for Q3 2025 plummeted by 59% to $356 million from $871 million in Q3 2024, largely due to $392 million in impairments and other charges.
• Net income attributable to the company for Q3 2025 was $18 million, a sharp decrease from $571 million in Q3 2024.
• Basic and diluted net income per share for Q3 2025 was $0.02, down from $0.65 in Q3 2024.
• The effective tax rate for Q3 2025 was 90.9%, primarily impacted by a $125 million valuation allowance on deferred tax assets due to the 'One Big Beautiful Bill Act' and pre-tax charges.
• Year-to-date (nine months ended September 30, 2025) total revenue decreased by 5% to $16.5 billion from $17.3 billion in the prior year period.
• Year-to-date operating income fell by 48% to $1.5 billion from $2.9 billion, including $748 million in impairments and other charges.
• Year-to-date net income attributable to the company was $694 million, down from $1.886 billion in the prior year period.
• Year-to-date basic and diluted net income per share was $0.81, compared to $2.13 in the prior year period.
• Cash and equivalents decreased to $2.0 billion as of September 30, 2025, from $2.6 billion at December 31, 2024.
• Cash flows from operating activities for the nine months ended September 30, 2025, were $1.8 billion, down from $2.4 billion in the prior year period.
• Capital expenditures for the nine months ended September 30, 2025, were $917 million, compared to $1.016 billion in the prior year period.
• Repurchased 11.3 million shares of common stock for $252 million during Q3 2025, with approximately $2.3 billion remaining authorized under the program.
• Incurred $50 million in SAP S4 upgrade expense in Q3 2025, totaling $112 million year-to-date, with expected completion in Q4 2026 and ongoing quarterly costs of approximately $40 million.
• Recorded a $23 million charge in Q3 2025 due to the impairment of an investment in Argentina.

Sentiment

Score: 3

Explanation: The financial results for Q3 and YTD 2025 show significant deterioration in revenue, operating income, and net income compared to the prior year, driven by market softness, substantial impairments, and a very high effective tax rate. While management is taking cost-cutting measures and maintaining shareholder returns, the overall financial performance and outlook are negative.

Positives

• Entered into a new $3.5 billion five-year revolving credit facility, providing strong liquidity with the full amount available.
• Maintained a commitment to shareholder returns, repurchasing 11.3 million shares for $252 million in Q3 2025 and paying $0.17 per share in dividends.
• Implemented cost reduction measures in Q3 2025, expected to save approximately $100 million per quarter going forward.
• Europe/Africa/CIS revenue increased by 15% in Q3 2025, driven by higher completion tool sales and improved drilling-related services in the North Sea and increased well construction activity in Namibia.
• Continued investment in core strategic technologies and businesses, including international expansion of artificial lift, well intervention, unconventionals, and drilling technologies, despite overall capital expenditure reduction plans.
• Progressed sustainability efforts with Halliburton Labs supporting 40 participating clean tech companies and alumni.

Negatives

• Total revenue decreased by 2% in Q3 2025 and 5% year-to-date 2025 compared to the prior year periods.
• Operating income significantly declined by 59% in Q3 2025 and 48% year-to-date 2025, primarily due to increased impairments and other charges.
• Net income and earnings per share saw substantial reductions in both Q3 and year-to-date 2025.
• Incurred $392 million in impairments and other charges in Q3 2025, including severance costs, fixed asset write-offs, and impairment of assets held for sale.
• The effective tax rate for Q3 2025 was 90.9% due to a $125 million valuation allowance on deferred tax assets and pre-tax charges.
• Completion and Production segment revenue decreased by 2% and operating income by 23% in Q3 2025, driven by lower pressure pumping services in North America and reduced completion tool sales.
• Drilling and Evaluation segment operating income decreased by 14% in Q3 2025, impacted by activity mix and mobilization costs.
• Latin America revenue decreased by 5% in Q3 2025, largely due to decreased activity in Mexico and lower completion tool sales in Brazil.
• Middle East/Asia revenue decreased by 8% in Q3 2025, primarily from decreased activity in Saudi Arabia and Malaysia.
• Experienced payment delays from a primary customer in Mexico, representing 11% of total receivables as of September 30, 2025.
• Oil prices declined further in Q3 2025, and the macro environment for oil and natural gas remained volatile, impacting demand outlook and customer spending.

Risks

• An unresolved IRS audit for the 2016 tax return regarding the reclassification of a $3.5 billion termination fee paid to Baker Hughes, which could result in cash taxes due of approximately $640 million plus interest if the IRS's position prevails.
• Risk of delayed customer payments and payment defaults, particularly from a primary customer in Mexico, which accounted for 11% of total receivables.
• Exposure to market volatility in oil and natural gas prices, global supply and demand, and geopolitical tensions, which significantly impact customer spending on exploration and production.
• Ongoing impact from inflationary cost increases and extended supply chain lead times for select raw materials.
• The 'One Big Beautiful Bill Act' signed on July 4, 2025, impacted the realizability of Foreign Tax Credits (FTC) carryforwards, leading to a $125 million valuation allowance.
• The potential for adverse outcomes from various legal or governmental proceedings, claims, or investigations, though management believes current matters will not have a material adverse effect.
• The SAP S4 migration project has been extended, leading to higher estimated total costs and potential operational disruptions during the transition.

Future Outlook

Expect full year 2025 international revenue to decrease year over year, primarily driven by further activity reductions in Saudi Arabia and Mexico, partially offset by revenue growth in Brazil, Norway, and offshore frontier basins. North America full year 2025 revenue is also expected to decline year over year due to lower drilling and completion activity and pricing pressure, with gas activity increases unlikely to offset decreases in oil-directed activity. Capital spending for 2025 is expected to be approximately 6% of revenue, with a planned reduction of 30% in 2026 to approximately $1.0 billion. The SAP S4 migration is expected to be completed in the fourth quarter of 2026, with estimated costs of approximately $40 million per quarter going forward. Despite market softness, believe the combination of long-cycle international investment and emerging structural demand for natural gas positions the business for durable growth over the medium and long term.

Management Comments

• Our strategic priorities include increasing international growth in directional drilling, unconventionals, well intervention, and artificial lift businesses.
• We aim to maximize value in North America by increasing utilization of our Zeus electric fracturing platform and iCruise rotary steerable systems, and incorporating automation technologies.
• We continue to drive differentiation and efficiencies through the deployment of digital and automation technologies, both internally and for our customers.
• We maintain our capital expenditures at approximately 6% of revenue while utilizing technology and targeted process improvements to enhance capital efficiency.
• We target returning over 50% of annual free cash flow to shareholders through dividends and share repurchases.
• We continue to develop technologies and solutions to help lower our customers' and our emissions intensity, participate in carbon capture, utilization, and storage, and geothermal projects globally, and support Halliburton Labs early-stage company participants.
• We have seen customers reduce their expected spend on oil and gas exploration and production activities and engage in other cost-cutting activities, which has caused us to lower our expectations of activity over the short to medium term.
• To address the softness in the market, we reduced our variable and fixed cash costs in the third quarter of 2025, which we expect will save us approximately $100 million per quarter going forward.
• We will continue to idle, relocate, or retire equipment that does not meet our return thresholds and will remain focused on generating free cash flow and returns, and capital discipline.

Industry Context

Oil prices declined further in the third quarter of 2025 due to ongoing supply additions from OPEC+ and non-OPEC producers, coupled with weaker global economic activity and cautious consumer spending. Geopolitical unrest in the Middle East and the Russia-Ukraine conflict continue to be sources of volatility. The active rig count in the United States declined modestly, while international rig count increased modestly. Trade tensions and tariffs continue to negatively impact the demand outlook, and the pace of supply growth has outstripped expectations. Customers are reducing expected spend on oil and gas exploration and production activities, leading to a softening market.

Corporate Governance

Legal Proceedings

• A class action complaint filed on January 12, 2024, challenging the validity of certain advance notice and stockholder nomination provisions of the By-laws was closed on October 16, 2025, after the company modified the challenged provisions and paid plaintiff's counsel $150,000 in fees and expenses.

Related Party Transactions

• Entered into Credit Default Swaps (CDSs) with third-party financial institutions with an aggregate notional amount of $750 million as of September 30, 2025, related to borrowings provided by these institutions to a primary customer in Mexico. Portions of the proceeds were utilized by this customer to pay outstanding receivables.

Stakeholder Impact

• Shareholders: Experienced significantly lower net income and EPS, but benefited from continued share repurchases ($252 million in Q3 2025) and quarterly dividends ($0.17 per share).
• Employees: Impacted by severance costs ($169 million in Q3 2025, $276 million YTD 2025) due to global headcount rationalization.
• Customers: Facing pricing pressure and reduced spending on oil and gas exploration and production activities due to market conditions. Some customers, particularly in Mexico, have experienced payment delays.
• Creditors: The company maintains a manageable debt maturity profile and a new $3.5 billion revolving credit facility, indicating stable creditworthiness despite financial headwinds.
• Suppliers: Payment terms have generally been extended to 90 days, with an agreement allowing participating suppliers to finance payment obligations with third-party financial institutions.

Next Steps

• Complete the SAP S4 migration project, expected in the fourth quarter of 2026.
• Reduce capital expenditures by 30% in 2026, targeting approximately $1.0 billion.
• Continue to monitor and assess the impact of tariffs on goods imported into the United States.
• Vigorously contest the IRS's proposed adjustment regarding the $3.5 billion Baker Hughes termination fee through administrative appeals and potentially federal courts.
• Continue to execute strategic priorities for international growth, North America value maximization, digital differentiation, capital efficiency, shareholder returns, and advancing a sustainable energy future.
• Continue to rationalize global headcount and idle, relocate, or retire equipment that does not meet return thresholds to address market softness.

Key Dates

Recommendation

The significant decline in Q3 2025 and year-to-date financial performance, marked by reduced revenue, sharply lower operating and net income, and a high effective tax rate due to substantial impairments and a tax valuation allowance, presents a challenging short-term outlook. The softening oil and gas market, coupled with customer spending reductions, indicates continued headwinds. However, the company's proactive measures, including cost-cutting initiatives, a new revolving credit facility ensuring liquidity, and a commitment to shareholder returns through dividends and share repurchases, provide some stability. The long-term strategy focusing on international growth, digital differentiation, and sustainability, alongside planned capital expenditure reductions for 2026, suggests a strategic response to market conditions. Given the current market volatility and the company's efforts to adapt, a 'hold' recommendation is appropriate, allowing investors to monitor the effectiveness of these strategic adjustments and the resolution of the IRS tax dispute.

Keywords

Halliburton, HAL, Oilfield Services, Energy, Q3 2025, Earnings, SEC Filing, 10-Q, Oil & Gas, Drilling, Completion, Production, North America, Latin America, Middle East, Asia, Europe, Africa, CIS, Impairment, Tax, Capital Expenditures, Share Repurchase, Dividends, SAP S4, ESG, Sustainability