Halliburton Impresses The Market With Strong North American Growth
Halliburton (NYSE:HAL), the world’s third largest oilfield services company, posted an impressive set of financial numbers for its December quarter and full year 2017((Halliburton Announces December Quarter 2017 Results, 22nd January 2018, www.halliburton.com)), beating the market expectations for both revenue and earnings. The company reported a remarkable improvement in its annual revenues and earnings, driven by the strong drilling demand and pricing in the North American onshore markets. As a result, the company’s stock rose almost 6.5% post the announcement of results. Going forward, Halliburton will continue to capitalize on the North American recovery and normalize its margins to maintain its dominance in the industry.
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Key Highlights Of 4Q’17 Earnings Release
- Halliburton’s 2017 revenue rose almost 30% to $20.6 billion, driven by the utilization and pricing improvements in the North American onshore markets. Since the company has a higher presence in the North American markets, it was able to leverage the recovery in these markets, much more effectively compared to its closest competitor, Schlumberger.
- Further, the company saw improvement in the European markets due to improved higher utilization in the North Sea, Algeria, and Egypt. Also, the company witnessed an uptick in its drilling activity and software sales in Latin America, particularly Argentina, Brazil, and Mexico, which was partially offset by the reduced drilling activity in Venezuela.
- As a result of the recent economic and political developments in Venezuela, Halliburton recorded a write-off charge of $385 million during the fourth quarter. Further, the oilfield contractor booked a tax charge of $755 million due to the implementation of the Tax Cuts And Jobs Act of 2017. Yet, the company managed to post adjusted earnings of $1.22 per share, which is significantly higher compared to an adjusted loss of 2 cents.
Going Forward
- With the extension of production cuts by OPEC and Non-OPEC members until the end of this year, Halliburton expects that oil prices, and in turn, the demand for unconventional oil and gas drilling to continue to grow in 2018. The positive outlook for commodity prices is likely to boost the investment appetite and availability of financing, particularly for the North American drillers.
- The company expects the drilling activity in the international markets to improve gradually throughout 2018. However, due to continued pricing pressure and concessions, the recovery is likely to be choppy.
- In terms of improving the profitability, Halliburton plans to stick to its previous strategy of normalizing its margins. Under this strategy, the company plans to :
- increase the pricing of its services and equipment with the recovery in oil prices and drilling demand,
- improve its equipment utilization by engaging with customers that can effectively use its services, and
- structurally reducing its operating costs by using advanced technology.
- The above strategy, coupled with Halliburton’s superior service quality, is expected to enhance its margins in the coming quarters, putting it back on the path of recovery.
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