Some Trends That Could Drive Halliburton’s Business In The Near Term
Halliburton (NYSE:HAL), the second-largest oilfield services provider, could be poised for better times after a relatively tough 2016 and 2017, as higher oil prices improve demand for oilfield services both in North America and abroad. The oil rig count in the U.S. is up by about 13% year-over-year as of June 15, while the international rig count is also up slightly, per data from Baker Hughes. Besides the broader improvement in the market, there also appear to be some specific trends that could drive Halliburton’s performance in the near-term.
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.
Higher Mix of Short Cycle Projects As Oil Remains Volatile
While oil prices have been on the uptrend this year, price volatility has also been relatively high, making oil and gas companies somewhat circumspect about meaningfully expanding their CapEx plans. Short-cycle investments continue to drive much of the oil and gas activity this year, as many operators are refraining from making major investments in longer-term projects (which call for higher capital investments and risks, with higher potential reward), instead opting for projects that have shorter lifecycles. Unconventional operations, such as shale and tight oils, are likely to be favored by operators, as they generally entail smaller capital investments and help companies maintain their financial stability, while giving them some flexibility to scale up production quickly as oil prices improve. This trend could bode well for Halliburton, as it derives a significant portion of its revenues from unconventional operations such as pressure pumping in the North American market. Additionally, other countries are also expanding their unconventional activity. For instance, Halliburton recently won a contract for unconventional gas stimulation services in Saudi Arabia, as the country looks to reduce its crude consumption for domestic purposes.
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Higher Service Intensity For Unconventional Plays
Service intensity for pressure pumping operations is also trending higher, for multiple reasons. For one, frackers are moving away from more expensive guar gum-based fracs to slick-water fracs that are more economical from a consumables point of view. However, this method uses more water and sand and requires more horsepower and also puts more strain on equipment. Despite this, drillers appear to prefer this method to the guar-based fracking. Halliburton, being a fracking equipment supplier, could see more demand due to higher equipment degradation. For perspective, the company has indicated that close to 50% of the new capacity coming into the market would go towards replacing worn out capacity. Additionally, customers now have a large portfolio of economically viable projects, with Brent crude prices close to $70 a barrel, implying that service intensity could also increase further as operators move to more challenging plays.
View key data points for Halliburton
Below are our core reference data for dashboards on HAL’s upstream metrics.
Halliburton EBITDA – Historical Trend & Forecast Data
Halliburton North America Revenue- Historical Trend & Forecast Data
Halliburton Latin America Revenue- Historical Trend & Forecast Data
Halliburton Capital Expenditures – Historical Trend & Forecast Data
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