Halliburton Jockeys for Role in China’s Shale Exploration

by Trefis Team
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Halliburton Company
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The Chinese government laid out an aggressive plan to develop the country’s massive shale gas reserves that calls for Chinese companies to work in tandem with foreign players. The plan by the National Energy Administration (NEA) says that the annual shale gas output in the country will jump from close to about 6.5 Billion Cubic Meters (BCM) by 2015 and grow to 10 times that amount by 2020. [1] In contrast the U.S. produced close to 138 BCM of natural gas from shale formations in 2010. [2] Large scale adoption of shale exploration technology could help Halliburton (NYSE:HAL) and competitors like Schlumberger (NYSE:SLB) boost revenues from the Asia market.

We have a $50.34 price estimate for Halliburton, which is at a 45% premium to its current market price.

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Grand plans

China is looking to cut its dependence on coal and natural gas imports by exploiting its local shale resources over the next few years. The forecast issued by the NEA shows that gas output from shale could be as high as 60 to 100 BCM a year by 2020 with exploration spread across 19 designated areas. [1]

Local companies are looking to tie up with foreign players such as Chevron and Total to gain access to the technical know how to explore shale. Halliburton has boosted its revenues in North America over the last few years by providing services related to shale exploration such as hydraulic fracturing. Shale exploration has also resulted in the North American rig count increasing rapidly in the recent past. A similar boom in China could boost rig count in the Asian region and provide companies like Halliburton, the opportunity to export their expertise to new regions.

Gas exploration in North America has been hit because of the low price of natural gas. Prices of the commodity in the Asian markets continue to remain high because of their link to oil benchmarks. High gas prices could further help countries in the region to explore unconventional resources, which are generally costlier to  extract. A shift to shale exploration will also help Halliburton increase its revenue per rig metric in Asia because of the higher service intensity of extracting unconventionals.

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Notes:
  1. China Forecasts Soaring Shale-Gas Output, WSJ [] []
  2. U.S. shale gas production rising at sharp rate, Star Telegram []
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