Why Halliburton Remains Confident About Fracking Market Despite Oversupply Concerns

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Halliburton (NYSE:HAL), the second-largest oilfield services provider, published its Q1 2018 results on Monday, largely meeting market expectations. The company’s total revenues stood at $5.7 billion, marking a 34% increase over Q1’17 driven primarily by robust growth in the North American market. Adjusted income from continuing operations stood at $358 million, compared to $34 million in the year-ago period. Below, we provide some of the key takeaways from the company’s results.

We have created an interactive dashboard analysis which outlines our expectations for Halliburton over 2018. You can modify the drivers to arrive at your own estimates for the company’s EPS.

Overview Of Results

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Halliburton’s revenues from the North American segment grew by 46% year-over-year to $3.8 billion, driven primarily by the U.S. land market. The company said that demand for pressure pumping services was strong, with its frac fleets achieving a new record for stage counts, while other activities such as drilling and an artificial lift also saw a strong uptake. The company has indicated that it expects to achieve normalized margins of roughly 20% in North America by the end of 2018, driven by tighter conditions in the pressure pumping market.  Halliburton also posted modest growth in international markets, driven by the Europe/Africa/CIS division and the Middle East/Asia unit. However, the company continued to underperform in Latin America, due to activity declines in Venezuela and weaker pressure pumping and project management activity in Mexico.

Outlook For Pressure Pumping Market

Pressure pumping constitutes one of Halliburton’s most important product lines and there has been some concern among investors that the U.S. pressure pumping market could see some oversupply, with about 3.3 million additional hydraulic horsepower of capacity coming online this year. Halliburton’s key rival Schlumberger also indicated that its capacity additions were less than planned, due to lower utilization, inefficiencies, and softer pricing. However, Halliburton said that it still expected the market to remain tight for the rest of 2018. For instance, the company says that wear and tear and degradation of existing equipment will reduce the effective net addition of capacity. The company estimates that roughly 50% of the announced horsepower would be replacing existing equipment on the field. Moreover, customers now have a large portfolio of economically viable projects, with oil prices ruling at close to $70 a barrel, implying that service intensity could also increase further.

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