Halliburton’s 2Q’17 Earnings Beat Market; Expects Shale Boom To Recede In 2018

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Following the footsteps of its rival, Schlumberger, Halliburton (NYSE:HAL) posted a stellar improvement in its June quarter 2017 performance on 24th July 2017((Halliburton Announces June Quarter Results, 24th July 2017, www.halliburton.com)), backed by the shale recovery in the North American onshore markets. The world’s third largest oilfield services company reported 2Q’17 revenue of $4.96 billion and adjusted earnings of 23 cents per share for the quarter, beating the market expectations by a significant margin. Yet, the Houston-based company’s stock plunged more than 4% post the announcement of the results, as its departing Executive Chairman, Dave Lesar, painted a pessimistic picture of the North American markets for the forthcoming quarters. According to him, the region’s rig count is showing signs of plateauing and the US shale producers are likely to pull back their investments from the shale space soon. If this scenario becomes a reality, oilfield services companies, such as Halliburton, are expected to experience another wave of downturn in the coming quarters.

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Key Takeaways From 2Q’17 Results

  • Halliburton’s 2Q’17 revenue rose 16% sequentially to $4.96 billion driven by increased utilization and pricing in the US onshore markets. The company’s North American revenue grew 24% compared to the previous quarter, outpacing the growth in the US rig count during the same period.
  • In addition, the oilfield contractor witnessed higher drilling activity in Latin America, increased well completion and drilling services in Europe/Africa/CIS, and increased fluid activity in the Eastern Hemisphere, which contributed to its international revenue growth.
  • In July 2017, Halliburton announced the acquisition of Summit ESP and Ingrain Inc.  Summit ESP is a leading provider of electric submersible pumps (ESP), and related technology and services, while Ingrain specializes in rock physics, using digital scanning and analysis. The additions of these two businesses is likely to strengthen the company’s artificial lift and wireline portfolios for its global customers.

Way Forward

  • The commentary by Dave Lesar indicates that the shale boom may not prevail for long, as US producers are likely to pull back their production soon. Further, the company’s business development head, Mark Richard, had pointed out earlier this month that the demand for oilfield services and equipment is unsustainable, and will lead to the weakening of the US shale boom in the next year. He expects the US rig count to expand to 1,000 units by the end of this year, but drop back to 800-900 units in 2018. However, Halliburton’s new Chief Executive Officer (CEO), Jeffrey Miller, remains positive about the recovery in the North American markets and believes in the company’s ability to leverage this growth.
  • Halliburton foresees some improvement in the international markets in the second half of the year. However, these improvements may not be enough to offset the ongoing pricing pressure in these markets.  Also, the company expects these markets to remain under-invested in the coming quarters.

Source: Google Finance; US Energy Information Administration (EIA)

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