Wednesday, July 13, 2011

Halliburton Co. (NYSE: HAL): Q2 Earnings Preview 2011

Halliburton Company (NYSE: HAL), the world's second largest oil services firm, is scheduled to release second-quarter earnings before the opening bell on Monday, July 18, 2011. Analysts, on average, expect the company to report earnings of 72 cents per share on revenue of $5.65 billion. In the year ago quarter, the company reported earnings of 52 cents per share on revenue of $4.39 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.

The company has enjoyed double-digit year-over-year percentage revenue growth for the past four quarters. Over that span, the company has averaged growth of 34%, with the biggest boost coming in the most recent quarter when revenue rose 40.4% from the year earlier quarter. The company has now seen net income rise in three straight quarters. In the first quarter, net income rose more than twofold while it rose more than twofold in the fourth quarter of the last fiscal year and more than twofold in the third quarter of the last fiscal year.

In the preceding first-quarter, the Houston, Texas-based company's net income was $511 million or 56 cents per share, compared with a profit of $206 million or 23 cents per share in the prior-year quarter. On an adjusted basis, the company earned 61 cents per share in the first quarter. Revenue jumped to $5.28 billion from $3.76 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of 59 cents per share on revenue of $4.92 billion.

Halliburton is the leading player in hydraulic fracturing of shale in the United States, where the technology has been used to unlock huge quantities of gas that were too difficult and expensive to tap only a decade ago. At its last earnings call in April, the company said that it continues to see improved margins in North America, the world's largest oilfield services market, despite shortages of the materials needed to coax oil and natural gas from unconventional fields, a company official told investors Thursday. During the first quarter Halliburton's operating income in North America more than tripled to $732 million, and revenue grew 75%. Technological advances that have allowed producers to extract fossil fuels from deeply buried shale formations, combined with high oil prices, have prompted a boom in onshore drilling in the U.S. and Canada. Such drilling couples hydraulic fracturing and horizontal drilling.

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.

During the quarter in review, Oilfield services company Halliburton won a contract to help oil giant Chevron Corp (NYSE: CVX) tap into Poland's vast shale rock formations in search of natural gas.

Full Disclosure: None.
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