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Halliburton Sees Drillers `Tap the Brakes’ on Shale Boom


July 24, 2017
(Bloomberg)
Halliburton Co., promising to be disciplined in adding more fracking gear to the oilfields, says U.S. explorers are “tapping the brakes” on drilling as the price of oil struggles to breach $50 a barrel.

The comments come days after Baker Hughes data found that explorers reduced the number of U.S. rigs for the second time in four weeks. The decline and the statements by Halliburton, the world’s biggest provider of fracking services, could bolster confidence that spending by the shale industry may be slowing as efforts by OPEC and its allies to raise oil prices have faltered.

In November, the Organization of Petroleum Exporting Countries and allies agreed to cut output, immediately boosting crude prices after the worst market rout in a generation. Since then, the U.S. shale industry has seen a growth spurt that’s kept stockpiles topped off and prices static. Now, signs are emerging that the U.S. industry may be eyeing its own slowdown.

“Today, rig count growth is showing signs of plateauing and customers are tapping the brakes,” Halliburton Executive Chairman Dave Lesar said on a call. “This demonstrates that individual companies are making rational decisions in the best interest of their shareholders.

The comments came after Halliburton reported that it swung to a profit in the second quarter as revenue rose 29 percent from a year earlier to $4.96 billion. That’s more than $1 billion higher than the company reported a year earlier. The comment by Lesar surprised analysts on the call, said J. David Anderson at Barclays Capital Inc.

‘Optically Bad’

“Optically it’s bad for service companies,” Anderson, who rates the shares the equivalent of a buy and owns none, said in a phone interview. But it’s also a positive for the oil market as a whole, he added.

Halliburton’s shares fell as much as 5.3 percent to $42.02. They traded at $42.13 as of 3:37 p.m. in New York, headed for the biggest drop since August 2015. West Texas Intermediate, the U.S. benchmark crude, rose 1.3 percent to settle at $46.34 Monday on the New York Mercantile Exchange.

“This tapping of the breaks is happening all over North America,” Lesar said. “I can tell you the market will respond, it will rebalance and these companies will stay alive, survive and thrive.”

Halliburton swung to a profit of $28 million, or 3 cents a share, from a loss of $3.2 billion, or $3.73, a year earlier, the Houston-based company said Monday in a statement. The quarter’s results show Halliburton’s strength in North America and suggest its reach is expanding globally, according to Lesar.

“We outperformed our major peer in every geo-market, demonstrating that we continue to grow our global market share,” he said in the statement.

Beat Estimates

Excluding certain items, profit was 5 cents higher than the 18-cent average of 34 analyst estimates compiled by Bloomberg. Halliburton more than doubled its operating profit margin for the unit that houses its fracking business.

The company surpassed expectations by reporting a 12.7 percent margin, higher than the 5.6 percent clip in the first three months of the year, according to Stephen Gengaro, an analyst at Loop Capital.

“We know that they are the largest and most efficient pressure pumper in North America,” Gengaro, who rates the shares a buy and owns none, said in a phone interview on Monday. “I think these numbers just highlight that fact.”

Larger rival Schlumberger Ltd. reported second-quarter results last week that included an 18 percent boost to North American revenue thanks to its rapid roll-out of the hydraulic-fracturing pumps, which blast water, sand and chemicals underground to release trapped hydrocarbons.

“At least our business is back in the black,” Paal Kibsgaard, the CEO at Schlumberger, said on a July 21 conference call. “We are now obviously actively pursuing market share.”

Halliburton has said it expects a spike in the price of oil by as early as 2020 after the entire crude industry slashed about $2 trillion in investments during the three-year downturn.

“Sooner or later, the market is going to catch up,” Mark Richard, the company’s senior vice president for global business development said earlier this month in an interview at the World Petroleum Congress in Istanbul. “You’ll see some kind of spike in the price of oil. Maybe somewhere around 2020-2021, but it’s got to catch up sooner or later.”



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