Halliburton Fourth-Quarter Net Grows as U.S. Hydraulic Fracturing Surges

Halliburton Co. (HAL), the world’s largest provider of hydraulic-fracturing services, expects its North America operating margins to decline further after falling in the fourth quarter as companies cut natural-gas drilling.

Halliburton, based in Houston, reported a profit margin of 27.2 percent for its largest region, down from 29 percent in the past two quarters, according to a statement today. The company expects another 1 percentage point decline in the regional margin this quarter as it moves eight hydraulic fracturing crews from gas basins to oil plays, Chief Financial Officer Mark McCollum told analysts today on a conference call.

“Cost inflation continues to have a negative impact,” Chief Executive Officer Dave Lesar said on the call. “There is a delay between vendor price increases and when we were able to pass through these increases to our customers. In the natural- gas basins, this is becoming more difficult.”

Halliburton helps companies drill for oil and gas, including using fracking, which blasts water mixed with sand and chemicals underground to free trapped hydrocarbons from shale formations. Increased use of fracking has boosted U.S. production, causing gas prices to hit a 10-year low and prompting companies including Chesapeake Energy Corp. and EQT Corp. to cut drilling operations.

Photographer: George Frey/Bloomberg

A Halliburton Co. natural gas drill stands in a gas field outside of Rifle, Colorado. Close

A Halliburton Co. natural gas drill stands in a gas field outside of Rifle, Colorado.

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Photographer: George Frey/Bloomberg

A Halliburton Co. natural gas drill stands in a gas field outside of Rifle, Colorado.

Halliburton fell 2.1 percent to $35.44 at the close in New York.

Concern About Oversupply

“There is concern out there we’re going to get into an oversupply in the near future,” Brian Youngberg, an analyst at Edward Jones in St. Louis, who rates the shares a “hold” and owns none, said in a telephone interview. “That could potentially put a little bit of a dent in the margins for all the companies.”

Baker Hughes Inc. (BHI), which provides North American fracking services, dropped 3.2 percent to $47.73 and Weatherford International Ltd. (WFT) dropped 0.7 percent to $16.42. Chesapeake Energy, the second-largest U.S. gas producer, said today it will idle rigs and cut production.

It’s “ridiculous” to think that margins in the North America region, which excludes Mexico, will “collapse,” Lesar said on the call.

Halliburton expects to increase revenue and operating income in North America by the end of 2012, Lesar said. Margins for the company’s Eastern Hemisphere business are expected to be in the “mid to high teens” at the end of this year, he said.

Net Income Rise

Net income rose 50 percent to $906 million, or 98 cents a share, from $605 million, or 66 cents, a year earlier, according to the statement. Excluding a $15 million charge related to an unspecified environmental matter, the company beat by 1 cent the average of 33 analysts’ estimates compiled by Bloomberg. Sales climbed 37 percent to $7.1 billion.

Halliburton widened its lead last year as the largest fracking-service company by boosting the amount of its pumping equipment 37 percent to 2.6 million horsepower in North America, according to Tulsa, Oklahoma-based Spears & Associates Inc.

To contact the reporter on this story: David Wethe in Houston at dwethe@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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