Halliburton Leaves Investors Wanting More in U.S. Shale Recovery

  • U.S. and Canada sales up 9% vs 19% jump in region’s rig count
  • Analysts expect Halliburton to swing to a profit this year

Halliburton Co.’s return to profitability in North America wasn’t enough to satisfy investors hungry for faster growth in its biggest market.

The world’s top provider of fracking services failed to keep up with the rapid growth in the shale patch last quarter.

North America’s drilling revival is leading the oil industry’s recovery, with shale explorers seen increasing spending four times faster than the global average this year. While the number of rigs drilling for oil and gas in the U.S. and Canada has more than doubled since May, and grew 19 percent in the last three months of the year, Halliburton’s revenue in the region rose just 9 percent from the previous quarter, according to an earnings report Monday. The shares fell the most in more than four months.

"We expected them to grow a little bit more with the rig count," Rob Desai, an analyst at Edward Jones in St. Louis, said Monday in a phone interview. "Now that things are recovering, they are fighting more for market share."

The oil services sector was the first to feel the pain when oil prices began falling in the middle of 2014 and has been hit the hardest, contributing more than three quarters of the half-million jobs slashed globally during the downturn. The four biggest service companies spent more than $3 billion on severance costs during the downturn.

Halliburton took on more severance costs in the final three months of the year for a workforce reduction in the Eastern Hemisphere and in Latin America. Emily Mir, a spokeswoman, declined to specify how many jobs were cut.

Better Margins

Though sales grew less than expected in the U.S. and Canada, Halliburton’s operating profit margin of 1.6 percent in the region was an improvement from three straight losing quarters.

In the rest of the world it’s a different story, Chief Executive Officer Dave Lesar told analysts and investors Monday on a conference call. Both Schlumberger Ltd. and Halliburton, the world’s two biggest oilfield contractors, have said on fourth-quarter calls that the international oil market may begin to recover around the second half of the year.

“Despite the positive sentiments surrounding North American land, it is important to remember that our world is still a tale of two cycles,” Lesar said. “The North America market appears to have rounded the corner, but the international downward cycle is still playing out.”

After Halliburton chose last year to pass up on some work that would drag its margins lower in North America, it now wants to defend its market share by taking on more jobs while at the same time boosting profit in the region with higher service prices. First-quarter revenue is expected to match or exceed the growth of the rig count, and margins should increase 40 to 45 percent from the fourth quarter, executives said on the call.

‘Barroom Brawl’

"In many ways 2016 was like a barroom brawl, where everyone and I mean everyone took a punch," President Jeff Miller said on the call. "It’s 2017 now and the brawl will continue, but I like our chances in that fight."
Schlumberger, the world’s No. 1 services provider, generates most of its sales outside the U.S. and Canada. On Friday, it reported that fourth-quarter net losses narrowed to $204 million from $1.02 billion a year earlier.

After unprecedented spending cuts over the past two years, explorers are forecast to boost capital expenditures worldwide by 7 percent in 2017, according to a Barclays Plc note to investors earlier this month. The U.S. is expected to lead the rest of the world with as much as a 40 percent increase in exploration and production spending, according to Bloomberg Intelligence.

Halliburton’s fourth-quarter net loss was $149 million, or 17 cents a share, compared with a loss of $28 million, or 3 cents a share, a year earlier. Shares fell 3.7 percent to $54.39 at 1:26 p.m. in New York after earlier sinking 4.5 percent, the most since Sept. 9.

"They were pretty full on market utilization heading into the fourth quarter, so there’s only so much more utilization you can get," Luke Lemoine, an analyst at Capital One Securities who rates the shares the equivalent of a buy and owns none, said Monday in a phone interview. "With revenues up just 9 percent and you still have 65 percent incremental margin, that gives a lot of hope in what 2017 EPS could be."

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