Halliburton Profit Falls as U.S. Fracking Business Slows

Halliburton Co. (HAL), the world’s largest provider of hydraulic-fracturing services, said third-quarter profit decreased 12 percent as customers negotiated cheaper rates because of the glut of fracking equipment.

Net income dropped to $602 million, or 65 cents a share, from $683 million, or 74 cents, a year earlier, Houston-based Halliburton said in a statement today. Excluding acquisition- related costs and a lawsuit settlement, the company met the 67 cent-a-share average of 29 analysts’ estimates compiled by Bloomberg. Sales climbed 8.6 percent to $7.1 billion.

Operating profit margin on an adjusted basis in North America dropped 5.6 percentage points to 15.1 percent compared to the second quarter due to pricing pressure and supply costs, according to calculations by Bloomberg. Halliburton said Sept. 4 it expected its margin to drop 5.1 percentage points.

“It’s not what people were expecting,” Luke Lemoine, an analyst at Capital One Southcoast in New Orleans, said in a telephone interview. He rates the shares an add, which means investors should buy the stock, and owns none. “People were looking for a little stronger show in North America where you could really call a bottom.”

North America

The world’s second-largest oilfield services provider helps companies drill and complete oil and natural gas wells using the pressure-pumping technique known as fracking, which blasts water mixed with sand and chemicals underground to free trapped hydrocarbons from shale formations.

Revenue and operating profit margin in North America are expected to fall further in the fourth quarter as customers reduce activity to stay within their drilling budgets for this year, Chief Financial Officer Mark McCollum told analysts today on a conference call.

A 3 percent increase in rigs drilling for oil was eclipsed by a larger decline in gas rigs in the U.S., and the Canadian count is down 26 percent from the same period last year, Chairman and Chief Executive Officer Dave Lesar said on the call.

Halliburton’s total spending this year is expected to be in the range of $3.4 billion to $3.5 billion, while next year’s budget should shrink by an unspecified amount, McCollum said.

Four of the biggest service companies, including Halliburton and Schlumberger Ltd. (SLB), will see their collective third-quarter operating profit drop by more than $1 billion in North America compared to a year earlier, according to estimates from Houston-based Tudor Pickering Holt & Co.

Price Decline

Prices charged for fracking services throughout the industry are expected to drop 14 percent this year and another 8 percent next year, according to PacWest Consulting Partners LLC, a Houston-based oil and gas adviser.

Halliburton is planning to park some of its unused U.S. fracking equipment rather than lower its prices to keep crews busy, Lesar said.

Halliburton gained 2.2 percent to $35.32 at the close in New York. The shares, which have 26 buy ratings from analysts, eight holds and one sell, climbed 19 percent during the quarter.

Sales outside the U.S. and Canada rose 19 percent to $3.2 billion compared to a year earlier. Halliburton said its total outlook for the international market hasn’t changed.

“There’s upside as the international side of the business continues to grow and North America continues to bottom out,” Scott Gruber, an analyst at Sanford Bernstein & Co. in New York, said in a telephone interview. He rates the shares at outperform, which means investors should buy the stock, and doesn’t own any.

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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