Halliburton Preview: North America Should See A Recovery, Watching International Operations

Oilfield services major Halliburton (NYSE:HAL) will publish its Q4 2013 earnings on January 21.  We expect the company’s results to improve on a  year-over-year basis, owing to improving operational efficiencies and strong offshore drilling in North America as well as due to strong global drilling activity. For this quarter, we will be watching the company’s performance in international markets.

Trefis has a $52 price estimate for Halliburton, which is roughly in line with the current market price.

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Europe/Africa CIS: Angola And North Sea Offshore Progress

Halliburton’s business in the Europe/Africa/CIS region has been doing well of late, and the revenues from the region are up by nearly 16% for the first nine months of the year while operating income has grown nearly 19%. Africa is viewed as a growth market given that it holds about 8% of the world’s oil and gas reserves and is home to a lot of unexplored blocks, while Europe is a technology-oriented market which offers high margin potential.

Drilling activity in Africa has been on the uptrend over the past year, with the average rig count rising from around 103 during Q4 2012 to around 135 in 2013, and the continent is seen as one of the final frontiers for oil and gas exploration. Halliburton has been gaining some ground in Africa, particularly in offshore markets like Angola, where it has witnessed strong contracting activity through the past year in the areas of subsea testing services as well as wireline in the country’s pre-salt market. ((Seeking Alpha))

While the overall rig count in Europe has remained relatively flat on a year-over-year basis through the fourth quarter, Halliburton could benefit from some recent contracts with Norway’s Statoil to provide drilling and completion fluids, cementing, stimulation and waste management services in the North Sea.

Latin America: Brazil And Mexico Could Weigh Down Results

We believe that  Latin America could prove to be a mixed bag for Halliburton in the fourth quarter, as the company had indicated that activity levels in Brazil and Mexico could be significantly lower than originally anticipated. In Mexico, for instance, PEMEX, the country’s national oil company, has been scaling down on its southern alliance project, reducing its rig count from around seven rigs to as low as two rigs by the end of this Q4, as it prepares for a round of mega-tenders. ^[1] However, work is likely to scale up after the new tenders.

Brazil has become one of the world’s largest offshore markets, owing to large hydrocarbon discoveries in the country’s pre-salt oilfields. However, the market has been undergoing some growing pains of late, and Halliburton had indicated that activity levels were likely to remain sluggish in the fourth quarter and into the next year. That said, the company has been making some market share gains  at the expense of rivals such as Baker Hughes. We believe this could prove to be a long-term positive for the company. The company has a market share of roughly 50% in Brazil’s offshore drilling services market. ((Bloomberg))

Asia Pacific/Middle East: Saudi Arabia In Focus

Saudi Arabia is one of Halliburton’s core markets. The company was recently awarded a sizable three-year contract to drill and complete new wells on an existing field. Additionally, Halliburton has also been stepping up its unconventional plays business in the Saudi Arabian market. We believe this will be an important factor to watch when the firm reports earnings. The global market for unconventionals such as shale gas and tight gas is still in its infancy, and could be a growth area for Halliburton given its market leadership position in services for unconventional plays in the United States.

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