Sluggish Drilling Demand Will Continue To Pull Down Halliburton’s 2Q’16 Results

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  • Halliburton (NYSE:HAL), the world’s second largest oilfield services company, is expected to release its June quarter 2016 financial results on 20th July 2016. [1]

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  • Owing to the production disruptions due to a wildfire in Alberta, Canada, and geo-political disturbances in Nigeria and Venezuela, WTI crude oil prices rose by more than 35% in the June quarter compared to the previous quarter. Consequently, Halliburton’s share price went up by greater than 25% in the last three months, as it is highly sensitive to oil price movement.

HAL-Q&A-2Q16-1

Source: Google Finance

  • While this led to a small improvement in the global rig count in the month of June, the overall rig count for 2Q’16 continued to decline both annually as well as sequentially.
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  • Despite the initial signs of recovery in commodity prices, the global upstream capital expenditure is likely to remain low in 2016. As a result, Halliburton has also reduced its capital spending budget for the year to $850 million, 60% lower compared to last year.
  • The lower upstream capital spend will continue to weigh heavily on the demand for rigs and further intensify pricing pressure in the oilfield services industry globally. Thus, we expect Halliburton’s 2Q’16 revenue to drop significantly on the back of weak drilling demand.
  • Further, the company has a large presence in the North American oil and gas markets, which have been severely impacted by the weak commodity prices. Consequently, we forecast the Houston-based company’s operating margins to deteriorate in this quarter.

 

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Halliburton Company

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Notes:
  1. Halliburton 2016 Second Quarter Conference Call, 19th May 2016, www.halliburton.com []