Oilfield services major Halliburton (NYSE:HAL) is slated to report its Q2 2014 earnings before the markets open on July 21. We expect the company’s earnings to improve on a year-over-year basis, driven by higher exploration and production activity in most of its key geographic markets. During the previous quarter, the company’s quarterly revenues rose by around 5% year over year to about $7.35 billion while adjusted operating income grew by about 7.5% to $970 million.  Here is a brief look at a few of the factors that are likely to influence the company’s performance.
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Higher Global Exploration And Production Activity
Worldwide hydrocarbon exploration and production activity, which is a key revenue driver for oilfield services companies, is likely to have remained upbeat through much of the second quarter. Overall exploration and production spending by oil and gas companies is expected to outpace global GDP growth over the next few years, growing at a rate of roughly 6% to 7% per year. This spending is supported by a reasonably favorable oil and gas pricing environment, which provides oil companies acceptable economic returns in most geographical regions. According to data from Baker Hughes, the total worldwide rig count rose by roughly 6% year over year for the first two months of Q2, with activity in the Eastern Hemisphere proving to be particularly strong. 
Middle East and Asia: Higher Gas Directed Activity In Saudi Arabia
Saudi Arabia is one of Halliburton’s core markets. The country’s national oil company, Saudi Aramco, has been shifting its focus away from boosting oil production capacity and instead investing in areas such as natural gas, petrochemicals, refineries and electricity generation.  Over the first two months of Q2, the gas-directed rig count in the country was up by nearly 52% year over year to more than 40 rigs and this could prove beneficial for Halliburton. The company has been increasing its integrated project activity in the region and has also been active in the country’s unconventional gas space. During the first quarter, Halliburton saw its business in Saudi Arabia rise by about 50% year over year and we believe that the strong growth is likely to continue as the company has been mobilizing new equipment for some new contracts that it has won in the region.  The company has also been deploying some of its new offerings in the Saudi Arabian market, including its CYPHER seismic-to-stimulation service platform.
North America: U.S. Pressure Pumping Demand Could Improve, Watching Pricing
Halliburton’s North American business had been facing some headwinds over the past two years owing to a weak market for pressure pumping services. However, things have been improving of late and the excess pumping horsepower in the market has been tightening much faster than expected due to higher natural gas prices (largely above $4.50 per MMBtu), increasing unconventional drilling activity and higher fracking stage counts. Additionally, Halliburton has been resorting to self-help initiatives – such as improving the operational efficiencies of its fracking fleet by installing more efficient equipment, and conducting more 24-hour operations that help to cut fixed costs. Halliburton will be the biggest beneficiary of a turnaround in the pressure pumping market, given that the service accounts for an estimated one-third of the company’s revenue mix. However, we believe that pricing could still prove to be an issue, since the company had some contract renewals that went into effect towards Q4 2013 and in early 2014, when the pressure pumping markets were still weak.
Latin America: Expect Drilling Slowdown In Brazil To Continue to Weigh On Results
During Q1 2014, Halliburton saw its revenues and operating income from Latin America decline by around 9% and 8% respectively, year-over year. This was largely due to a decline in drilling-related activity in Brazil, where national oil company Petrobras has been slowing down drilling of new wells in the pre-salt region owing partly to stronger-than-expected flow rates from some of its existing wells. The offshore rig count in Brazil is down by nearly 40% over the last year, and we believe that this is likely to weigh on Halliburton’s results, considering that it is one of the leaders in the Brazilian offshore market with a significant amount of service equipment in the region. However, this could be partially offset by higher activity in other Latin American markets such as Argentina, where there has been increasing drilling and unconventional stimulation related activity.Notes: