July 22 (Bloomberg) -- Halliburton Co., the world's second- largest oilfield-services provider, said net income dropped 67 percent after the sale of the company's stake in engineering unit KBR inflated 2007 earnings.

Second-quarter profit fell to $507 million, or 55 cents a share, from $1.53 billion, or $1.62, a year earlier, Houston- based Halliburton said today in a statement. Excluding such items as the KBR gain, a legal settlement and a failed takeover bid, per-share profit rose to 68 cents from 63 cents, matching the average of 22 analyst estimates compiled by Bloomberg.

Halliburton jettisoned KBR last year, tightening its focus on oilfield work as surging crude prices spurred demand for exploration and production services. The company opened a Middle East headquarters in Dubai and added technology centers in Russia and Asia to expand its presence overseas, where services providers are benefiting as producers ratchet up oil spending.

``The international theme for all these companies is going to be very similar,'' said Dan Pickering, an analyst at Tudor, Pickering, Holt & Co. Securities in Houston. ``International is clearly the growth driver in the second quarter.''

The average number of drilling rigs at work around the world climbed 7.6 percent from a year earlier in the second quarter, according to Baker Hughes Inc., the third-largest oilfield contractor. In the U.S., where Halliburton is the market share leader, the rig count rose 6.1 percent.

Halliburton's second-quarter revenue climbed 20 percent to $4.49 billion, according to the statement. Revenue outside North America jumped 26 percent, exceeding the company's target of 20 percent, Halliburton said.

Prices Surge

U.S. oil futures traded 90 percent higher than in last year's second quarter and rose above $140 a barrel for the first time. Natural-gas prices were 50 percent higher, on average.

Oil and gas producers will raise spending worldwide by an estimated 20 percent this year to $418 billion, Lehman Brothers analyst James Crandell said in a report last month. Spending outside the U.S. and Canada will climb 22 percent, he said.

Schlumberger Ltd., the world's largest oilfield-services company, said July 18 that its second-quarter profit rose 13 percent to $1.42 billion, or $1.16 a share.

Halliburton fell $2.61, or 5.3 percent, to $46.30 in New York Stock Exchange composite trading, dropping along with oil and gas futures. The stock jumped 35 percent in the second quarter.

KBR Gain

Halliburton's April 2007 sale of its stake in KBR, the largest military contractor in Iraq, resulted in a gain that increased last year's second-quarter earnings by $933 million. Splitting off the unit was the best way to get the most market value out of both Halliburton and the former subsidiary, Chief Executive Officer David Lesar, 55, said at the time.

Second-quarter profit from the company's drilling and evaluation business rose 38 percent to $480 million. The unit makes drill bits and provides drilling fluids and directional drilling, which allows a customer to change the direction of a well to better target a reservoir.

Profit from Halliburton's completion and production segment, which includes pressure pumping, rose 1.1 percent to $561 million, the company said.

Declines in gas prices in 2006 and 2007 and increased competition hurt pricing for pressure pumping. U.S. gas drilling rose just 0.9 percent from a year earlier in the second quarter, according to Baker Hughes.

Stage Is Set

A more than doubling of gas prices from last August to the end of the second quarter reinvigorated the market, stabilizing services rates and setting the stage for increased business ahead, Lesar said in the statement.

Growth in North American gas drilling, which has lagged behind overseas oil exploration, will likely accelerate as producers develop fuel deposits in shale formations stretching from Texas to Pennsylvania, analysts said.

Calgary's EnCana Corp. said last month that the Haynesville Shale in Louisiana may be as prolific as the Barnett Shale in north Texas, where output is about 3 billion cubic feet of gas a day and rising. Range Resources Corp. of Fort Worth on July 14 raised reserve estimates for Pennsylvania's Marcellus Shale.

``Everybody's been talking about their plays,'' said Ben Dell, an analyst at Sanford C. Bernstein & Co. in New York, who rates Halliburton shares ``outperform'' and doesn't own any. ``The reality is, now they have to deliver it, and that means that money gets transferred down the food chain.''

Horizontal Drilling

Halliburton stands to benefit also from horizontal drilling, which increased 42 percent in the latest quarter. Horizontal drilling allows producers to burrow across a reservoir with a single well rather than using multiple vertical shafts. A slurry, often of sand and water, is typically injected into a well to stimulate a formation by fracturing the rock.

``As unconventional and horizontal activity continues to expand, we have seen many of our recent technology introductions become drivers for growth and increase our ability to address our customers' most challenging reservoirs,'' Lesar said in the statement.

Halliburton is the largest provider of fracturing services.

The company's fastest profit growth in the second quarter was in Latin America, at 35 percent. The Eastern Hemisphere accounted for 42 percent of Halliburton's revenue, up from 41 percent a year earlier. Lesar, who moved his office to Dubai last year, set a goal of 50 percent.

To contact the reporter on this story: Jim Kennett in Houston at jkennett@bloomberg.net.

Last Updated: July 22, 2008 16:15 EDT