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Halliburton Beats Estimates on Lower North American Costs

Halliburton Co. (HAL), the world’s largest provider of hydraulic-fracturing services, reported first-quarter results that beat analysts’ estimates as the company reduced costs in North America.

Profit excluding discontinued operations and money set aside for oil-spill litigation was 67 cents a share, exceeding the 57-cent average of 34 analysts’ estimates compiled by Bloomberg. The results mark the 19th consecutive quarter Halliburton has beaten estimates. Sales climbed 1.5 percent to $6.97 billion.

Halliburton benefited from lower costs of guar, an ingredient used in fracking to get oil and natural gas from dense rock formations. Helped by other cost cuts and increased customer activity, margins improved about 400 basis points from the prior quarter. The company expects profit margins will continue to expand this year on “modest pricing increases” as customers use new technology to improve well output.

“Results were phenomenal,” Brian Uhlmer, an analyst at Global Hunter Securities LLC in Houston who rates the shares a buy and owns none, said today in a phone interview. “It’s all in driving efficiencies and keeping costs lower.”

Operating income in North America rose 30 percent from the fourth quarter to $605 million. Halliburton’s operating profit margin was 16 percent, beating Uhlmer’s expectation of 13 percent.

Photographer: Aaron M. Sprecher/Bloomberg

Birds sit above an oil storage tank at a Halliburton shorebase in Cameron, Louisiana. Close

Birds sit above an oil storage tank at a Halliburton shorebase in Cameron, Louisiana.

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Photographer: Aaron M. Sprecher/Bloomberg

Birds sit above an oil storage tank at a Halliburton shorebase in Cameron, Louisiana.

‘Turn Up’

The worst of the lower pricing pressure in North American fracking services has passed, Chief Operating Officer Jeff Miller told analysts and investors today on a conference call.

In addition, pricing for international work has already hit a low point and is “starting to turn up,” Chairman and Chief Executive Officer Dave Lesar said on the call.

“Ultimately I do think the results continue to improve in North America,” Jeff Tillery, a Houston-based analyst at Tudor Pickering Holt & Co. who rates the shares a buy and owns none, said in a telephone interview. The growth will depend on an increase in operating rigs, which has been slower than expected so far, he said.

The company had a first-quarter net loss of $18 million, or 2 cents a share, compared with net income of $627 million, or 68 cents, a year earlier, Houston-based Halliburton said today in a statement.

Settlement Talks

The results included a $637 million cost in the quarter to add to its reserves for litigation related to the 2010 U.S. Gulf of Mexico oil spill. Halliburton did cementing work on BP Plc (BP/)’s Macondo well. An explosion at the site resulted in the largest offshore oil spill in U.S. history. Halliburton is in settlement talks about its liability.

“We have recently participated in court-facilitated settlement discussions with the goal of resolving a substantial portion of private claims,” Lesar said in the statement. “We are pursuing these settlement discussions because we believe that an early and reasonably-valued resolution is in the best interests of our shareholders.”

Halliburton climbed 5.6 percent to $39.29 at the close in New York, the most since Feb. 14. The shares, which have 28 buy and seven hold ratings from analysts, have gained 13 percent this year.

Schlumberger Ltd. (SLB) and Baker Hughes Inc. (BHI), two other oilfield-services providers, also exceeded first-quarter estimates. Both companies reported results April 19.

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

To contact the editor responsible for this story: Tina Davis at tinadavis@bloomberg.net

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