Monday, January 24, 2011

Halliburton Co. (NYSE: HAL): Q4 Earnings Preview 2010

Halliburton Company (NYSE: HAL), the world's second largest oil services firm, is scheduled to release fiscal fourth-quarter earnings before the market open on Monday, January 24, 2011. Analysts, on average, expect the company to report earnings of 63 cents per share on revenue of $4.86 billion. In the year ago quarter, the company reported earnings of 28 cents per share on revenue of $3.69 billion.

Halliburton Company provides various products and services to the energy industry for the exploration, development, and production of oil and natural gas worldwide. The company operates under two main segments: Completion and Production, and Drilling and Evaluation.

In the preceding fiscal first-quarter, the Houston, Texas-based company's net income was $544 million, or 60 cents per share, compared to $262 million, or 29 cents per share, in the year-ago quarter. Revenue rose to $4.67 billion from $3.59 billion. Analysts, on average, expected the company to report earnings of 55 cents per share on revenue of $4.63 billion. Halliburton attributed the rise in revenues to strong performance in North America, where higher activity in the unconventional natural gas and oil basins offset declines linked to the deepwater drilling suspension in the Gulf of Mexico.

At its last earni9ngs call in October, the company said that it expects steady, incremental increases in activity internationally will generate volume-led margin improvements. Longer term, the company believes that the global economic recovery will increase the demand for liquids and the technology needed to unlock the next generation of complex reservoirs.

Halliburton enjoys a strong competitive position in the global oilfield services markets, given its array of lucrative development projects and a robust financial profile. The company has significant exposure to most of the fertile oil plays in the U.S, such as the Haynesville, Eagle Ford Shale and Bakken. In the near term, Halliburton is poised to benefit from uptrends in U.S. land drilling activities, where activity is being driven by oil and liquids-rich plays. This will make the reduction in gas activity less meaningful. Halliburton will continue to be a beneficiary of the bullish rig count fundamentals in the U.S., driven by horizontal drilling in the service intensive plays.

The company performed extremely well during the 2008-09 downturn and subsequent recovery. Its 2011 prospects look bright, as its end-stage markets continue to improve. Halliburton has also used the 2008-09 downturn to take out many smaller competitors by setting prices below their cash break-even costs. The aggressive moves during the downturn positioned Halliburton to turn in industry-leading performance in North America as the market recovered in 2010. As the services equipment broke down in the shale plays during the downturn, Halliburton took advantage of its strong financial position by investing in new replacement capacity, and stole huge swaths of market share from its smaller peers.

For more than a decade, Halliburton has been working on integrating its drilling services to fully optimize drilling performance while lowering costs. Halliburton began by placing its drilling engineering applications under one roof, which includes fluids, bits, and directional drilling. Over time, the firm has integrated its services into a single solution, which means that a customer can potentially obtain substantially greater well performance and reduced levels of non-productive time by standardizing on Halliburton's services rather than mixing services from multiple services providers. Halliburton estimates that around 60% of its well completions by the end of 2011 will be using fully-integrated offerings.

However, new environmental regulations for hydraulic fracturing in the shale plays, the intensely competitive nature of the market, and depressed natural gas prices will continue to overhang the stock during the longer-term.

Among other developments, Halliburton won a contract from ConocoPhillips (NYSE: COP) to provide drilling services to the Jasmine discovery in the North Sea region. With a 36.5% interest, ConocoPhillips will act as the operator of the Jasmine field while Eni SpA (E) and BG Group hold 33% and 30.5% stakes, respectively.

In terms of stock performance, Halliburton shares have gained nearly 16 percent over the past year.

Full Disclosure: None.
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