Halliburton (NYSE:HAL) will release its earnings for the last quarter on April 18. We will closely watch the company’s performance in this period to understand the changing market dynamics in the North American Exploration and Production (E&P) industry and its impact on Halliburton. Low gas prices in the U.S. are pushing explorers to shift toward oil rich plays, and Halliburton and its competitors Schlumberger (NYSE:SLB) and Baker Hughes (NYSE:BHI) have warned that the realignment in the industry could impact their profitability.
We have a $46.09 price estimate for Halliburton, which is at a 40% premium to its current market price.
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Gas prices in the U.S. fell below $2 / Million British thermal units (MBtus) last week after a mild winter and continuing oversupply. Prices are at their lowest point in a decade, and the profitability of gas production has been declining. Overproduction is resulting in the industry running out of underground storage, prompting fears that gas prices will fall even further in the future. Companies are pulling out of new exploration activity and shifting focus to liquid rich plays. The realignment in the industry is expected to impact utilization as well as profitability of services offered by Halliburton.
Another long-term shift in the North American market that will impact Q1 earnings is that the present situation will impact the pricing in the pressure pumping market. Pressure pumping capacity has more than doubled in the past few years and with gas exploration falling, players are crowding the liquids market, lowering prices in this segment. This could have a significant bearing on our growth estimates for Halliburton’s revenue per rig figures.
Halliburton’s performance in the international markets is expected to have remained strong in the past quarter. High oil & gas prices in global markets should fuel more exploration and production activity across geographies. Rising interest in shale exploration in Europe, Asia and Latin America should also boost Halliburton’s activity in these markets.