Why Investors Shouldn’t Worry Much About The Recent Halliburton Sell-Off

by Trefis Team
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Halliburton (NYSE:HAL) stock has seen a slight sell-off , declining by about 6% over the last three days, as the company warned that its third-quarter earnings could be hurt by 8 to 10 cents per share, amid a larger than expected slowdown in the Permian basin and pricing weakness in several other basins. Below, we take a look at some of the trends currently impacting the company and why we believe the headwinds are only transitory.

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.

Headwinds In The Permian Basin 

Activity in the Permian basin has been mixed for some time now, due to a lack of pipeline capacity for transportation of crude. This has effectively created a glut of oil in the basin, pushing local prices close to four-year lows, causing operators to slow down their drilling and production activity. While Halliburton outlined these trends a few months ago, the concerns now appear to be larger than initially expected. Separately, Halliburton has also indicated that a tight labor market in the U.S. and inflation concerns are also hurting activity in the region. The Permian is the most important oil and gas basin for services companies, as CapEx in the region is expected to represent close to a third of total spending on major U.S. land plays within the next three years. That said, these issues could ease in the medium-term, as new pipelines are expected to come online by late 2019, easing the capacity constraints.

Other Concerns In The Unconventionals Space

The broader U.S. fracking market is also seeing some softening, as rivals such as Schlumberger have been scaling up their capacity. This is limiting the pricing power for Halliburton’s most important product line in the U.S. market. Additionally, the Marcellus shale – another fast-growing basin in the U.S. – has been showing some signs of slowing, as operators are hitting their production targets sooner than anticipated. That said, we believe that the outlook for Halliburton remains positive, as the market could tighten in the medium term, due to higher service intensity and degradation of existing equipment. Moreover, in the currently volatile oil pricing environment, operators are likely to veer more towards short cycle unconventional projects in which Halliburton specializes, rather than committing t0 longer-duration projects.

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