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Halliburton Falls as Overseas Work Lags North America

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Halliburton Net Income Increases as Work Shifts to Onshore
Birds sit above an oil storage tank at a Halliburton shorebase in Cameron, Louisiana, U.S. Photographer: Aaron M. Sprecher/Bloomberg

Oct. 18 (Bloomberg) -- Halliburton Co., the world’s second-largest oilfield-services provider, declined 4.8 percent after profit fell in all regions outside of North America, disappointing investors’ expectations for global business.

Halliburton, which reached a two-year high last week, fell $1.73 to $34.09 at 4 p.m. in New York Stock Exchange composite trading. Operating income in the third quarter dropped 21 percent in Latin America from a year earlier. The decline was 31 percent in a region that includes Europe, Africa and the former Soviet Union, and 52 percent in the Middle East and Asia.

“We need to see a more broad-based improvement in earnings outside of North America to show that the oil-service sector is rebounding as expected,” said Brian Youngberg, an analyst at Edward Jones in St. Louis who has a “buy” rating on Halliburton shares and owns none.

Third-quarter net income climbed to $544 million, or 60 cents a share, from $262 million, or 29 cents, a year earlier, Houston-based Halliburton said today in a statement. Excluding such items as a tax gain related to discontinued operations, profit was 58 cents a share, 2 cents higher than the average of 33 analysts’ estimates compiled by Bloomberg.

“The expectations were just getting really ramped up at the end of last week,” said Roger Read, an analyst at Natixis Bleichroeder in Houston who has a “buy” rating on Halliburton and owns about 500 shares. “It’s a beat, it’s a good number, but I think there were people that were looking for something with a six on it. They didn’t get that.”

Onshore Rigs

Revenue surged 30 percent from a year earlier to $4.67 billion in the third quarter. Operating income in North America rose to $573 million from $37 million in the year-earlier quarter. Onshore projects more than made up for a slowdown in the Gulf of Mexico

The number of active U.S. onshore rigs averaged 1,587 in the third quarter, a 71 percent increase from a year earlier, as energy companies looked for alternatives to offshore drilling. Halliburton is one of the largest providers in North America of pressure pumping, which uses materials such as water and sand to fracture rocks and help gas or oil to flow. Producers use this technology to drill in shale formations.

“It’s just a lot of demand for pressure pumping, and Halliburton’s in the catbird seat,” John Lawrence, a vice president at Tudor Pickering Holt & Co. in Houston, said before the earnings announcement. Lawrence said his firm has a “buy” rating on Halliburton shares and that he owns none.

Adding Workers

Halliburton Chief Executive Officer David Lesar said in the statement that a shift to oil and liquids-rich basins in North America will be a catalyst for work through 2011 even as so-called dry gas activity falls. Lesar said he sees higher margins internationally from increased activity as the industry heads into 2011.

“If we’re long-term investors today, we view this as a very good opportunity to buy the shares of Halliburton with some technical weakness in the stock,” Stephen Gengaro, an analyst with Jefferies & Co. in New York with a “buy” rating on the shares, said in an interview with Lisa Murphy on Bloomberg Television.

The company added about 2,000 workers in the third quarter, Cathy Mann, a Halliburton spokeswoman, said in an e-mail today. That comes after Halliburton added 1,700 jobs in the second quarter of this year and 1,200 in the first quarter.

Gulf Spill

The Gulf spill occurred after an April 20 explosion at the Deepwater Horizon drilling rig, which Transocean Ltd. leased to London-based BP Plc. Halliburton provided cementing services on the well BP was drilling. The company has said it performed work at the site in accordance with BP’s specifications, and that its contract provides security for claims and expenses related to this type of situation.

The U.S. instituted a moratorium on deep-water drilling following the Gulf spill. Interior Secretary Ken Salazar lifted the ban this month as the government put in place new safeguards meant to prevent a similar event.

Chief Financial Officer Mark McCollum said in September that the impact of the drilling suspension would be at the low end of a July estimate of 5 cents to 8 cents per share in the quarter. The company has said it derived about 6 percent of its total revenue from the Gulf in this year’s first half.

McCollum also said last month that Halliburton would have a per-share charge in the quarter of 4 cents to 6 cents related to an oil and gas project in Bangladesh. Halliburton decided more investment to enhance recovery wasn’t worth returns the company saw for the project, McCollum said.

Halliburton also said it purchased 3.5 million shares of common stock for $114 million in the third quarter, leaving about $1.7 billion remaining under a share repurchase program.

Schlumberger Ltd., based in Houston and Paris, is the world’s largest oilfield-services contractor.

To contact the reporter on this story: Edward Klump in Houston at eklump@bloomberg.net.

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

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