Why Halliburton’s Stock Tanked Despite Solid Earnings

by Trefis Team
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Halliburton Company
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Halliburton (NYSE:HAL), the second-largest oilfield services provider, published its Q2 2018 results on Monday, meeting market expectations on earnings and beating estimates on revenues. The company’s performance was driven by strong growth in the North American geo market, where a growing rig count and higher service intensity have translated into stronger demand for products such as pressure pumping, drilling and artificial lift. However, Halliburton’s stock plunged by about 8% in Monday’s trading, as it warned of lower than expected growth in the Permian Basin – which is a key market for the company – over the second half of this year.

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Temporary Headwinds In The U.S. Could Hurt H2 Results

Halliburton’s customers in the Permian basin – which lies in western Texas and southeastern New Mexico – have been scaling back on their activity and reducing the number of rigs in operation, as the strong production in the basin has resulted in a lack of offtake capacity, with existing pipeline, rail and trucking capacity falling short of the oil supply growth in the region. This has led the price of regional crude to trade at a significant discount to the U.S. benchmark, hurting demand for oilfield services in the region. The company expects this softness to persist through the second half of 2018, although it expects activity to pick up in 2019, as additional pipeline capacity is added.

There appear to be some other issues in the U.S. market as well. For instance, the company noted that activity in the Marcellus shale is also slowing, as operators are hitting their production targets sooner than anticipated, partly due to longer lateral wells which offer better production. Halliburton also indicated that the market for pressure pumping services was also temporarily balanced, with competitors (such as Schlumberger) scaling up capacity. Halliburton previously estimated that there was a shortfall of about 0.5 million hydraulic horsepower in the market.

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