Why Halliburton’s U.S. Business Could Face Some Headwinds

Oilfield services activity in the U.S. has been expanding, supported by relatively stable oil prices. The growth in the U.S. rig count – a common proxy for oilfield services activity – has outpaced the global rig count, with over 1057 rigs in operation as of last week, up by over 11% year-over-year. However, Halliburton (NYSE:HAL), the world’s second-largest oilfield services provider, indicated during its Q2 conference call that it could see some near-term headwinds in the U.S. market despite the growing rig count.

Our interactive dashboard on what lies ahead for Halliburton in 2018 details our expectations for the company through the rest of the year. You can modify any of our forecasts or key drivers to see the impact that changes would have on the company’s results.

Rig Count And Activity

Halliburton’s customers in the Permian basin have been reducing the number of active rigs, 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. Activity in the Marcellus shale – another fast-growing basin in the U.S. – showed some signs of slowing, as operators are hitting their production targets sooner than anticipated. Halliburton indicated that it could be a victim of its own success in this case, as it has been helping customers develop longer lateral wells which offer better production. Additionally, the company indicated that the market for pressure pumping services was also temporarily balanced, with competitors scaling up capacity. This is limiting the pricing power for the company’s single most important product line in the U.S. market.

Separately, Halliburton’s rival Schlumberger has been scaling up its presence in the U.S. market, as it looks to take advantage of the long-term upswing in unconventional activity. For instance, the company acquired Weatherford’s U.S. pressure pumping assets for about $430 million recently. Over the first half of this year, close to 37% of Schlumberger’s revenues came from North America, up from just about 28% in the year-ago period. Schlumberger’s focus on integrated solutions and performance-based contracts could allow it to scale up further and better compete on Halliburton’s home turf.

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