New Coverage: $60 Trefis Price Estimate for Halliburton Co.
Halliburton Company (NYSE: HAL) provides products and services to oil and gas firms in upstream exploration and production activities. The company has operations in 80 countries that are classified into 4 main geographic divisions and competes with Schlumberger (NYSE: SLB) and Baker Hughes (NYSE: BHI) as well as with Transocean (NYSE: RIG) in the offshore and deepwater sector.
Halliburton is well positioned to benefit from the burst in exploration and production activity that is expected as oil prices continue to climb higher against the backdrop of strong demand recovery and the political upheaval in the Middle East. As oil and gas firms spend increasingly large parts of their budgets to explore and develop new sources of oil, gas and unconventional sources of hydrocarbons, upstream services firms like Halliburton are expected to reap the windfall as the exploration and production of oil become more challenging and technologically intensive.
In 2010, the North American division accounted for 49% of Halliburton’s global revenues and 58% of the total operating profits with exploration and production showing strong recovery in the region driven by increasing interest in unconventional sources.
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Coverage Launch; $60 price estimate for Halliburton Company.
We recently launched coverage activity on Halliburton Company with a near $60 price estimate for the company’s stock which is at an 18% premium over its current trading price.
We have broken down our analysis of Halliburton Company along its four geographical divisions:
Under all the four geographies, Halliburton provides a host of products and services throughout the life cycle of the reservoir. Its products and services include reservoir modelling and drilling evaluation services to help clients optimize their well location and construction activities in addition to drilling a variety of equipment and support services needed for drilling. The company also offers software, integrated project management solutions and consulting.
North America Business
The strong demand for Halliburton’s services in North America was driven primarily by heightened activity in shale plays. The rig count growth in the Eagle Ford and Bakken basins touched 20% in Q4 2010 and the increasing complexity of the drilling efforts in these regions is improving Halliburton’s revenue per rig figure overall.
High oil prices support deepwater and offshore exploration and the exploitation of unconventional sources such as the Canadian tar sands, all of which should help Halliburton improve its revenues, operating margins and help offset the impact of low natural gas prices hurting gas exploration.
We expect Halliburton to increase its revenues and profit margins in North America significantly through 2011 as activity in unconventional extraction continues and its operations in the Gulf of Mexico resume in the second half of 2011. The push towards cutting American dependence on imported oil should spur local exploration and production efforts.
International Operations
Revenues from international businesses are also expected to improve through 2011 as Halliburton is involved in major exploration efforts in Brazil, Columbia, Saudi Arabia, Iraq, West Africa and the North Sea. The increase in activity in these regions is expected to offset the temporary declines the company is experiencing in Mexico and in Libya. As exploration and production activity shifts offshore in Latin America, the Middle East and in Europe, Africa and the CIS with output from land rigs on the decline, we see revenues for Halliburton rising, improving the overall outlook for the company.
Halliburton is also poised to benefit from efforts in the unconventional space in Europe, India, China, Latin America and Saudi Arabia that are expected over the next 1 to 5 years. In addition to this, the increasing interest in technologies that can arrest the decline rates of the mature oil fields in the Middle East and in Mexico can also present a significant opportunity for the company.