Halliburton In Line for Tough Questions

(Dow Jones Newswires), Nov. 8, 2010

Halliburton, the oil-field-services giant, goes under the spotlight of the presidential panel investigating the fatal Deepwater Horizon rig disaster, and then two days later will break down its business prospects for analysts at its annual investor meeting.

The company will likely be received very differently at each. Halliburton's shares took off in the past month, reaching a 52-week high after the company posted third-quarter earnings that doubled despite flat international results and a plunge in its usually lucrative domestic offshore work.

But the company's stock tumbled 8% days later when federal investigators studying the worst offshore oil spill in U.S. history released documents suggesting the Houston-based company knowingly provided BP with faulty cement for its doomed Gulf of Mexico well and failed to alert the British oil company about potential problems with the cementing. Since then, a federal judge in New Orleans has ordered Halliburton to turn over the materials it used on the well to federal investigators.

On Monday, top executives will face the presidential panel about its work on the Macondo well, which caught fire April 20, taking the lives of 11 workers, and then sank a few days later, unleashing the largest marine oil spill in U.S. history. Halliburton has insisted the explosion wasn't its fault, claiming BP cut corners in the well's design and that its contract with the oil company indemnifies it against damages.

Led by former Sen. Bob Graham, a Florida Democrat, and William K. Reilly, who headed the Environmental Protection Agency during the first Bush administration, the presidential panel is scheduled to grill executives from Halliburton as well as BP and Swiss contractor Transocean Ltd., which owned the Deepwater Horizon rig, for more than three hours in an effort to fill in the blanks in its report on the events leading up to the rig explosion. That report is due Jan. 12.

Halliburton is expected to face some harsh questioning on its role in the deadly accident.

Halliburton will find itself in friendlier company on Wednesday when it hosts analysts and investors in Houston. How soon Halliburton can return to work in the Gulf of Mexico -- an area from which it has transferred some 400 employees -- may well be a more pressing concern among that crowd than liability for the disaster that rattled U.S. offshore drilling.

Indeed, analysts have generally shared the view that Halliburton isn't to blame for the oil spill. After federal investigators on Oct. 28 publicized their views on the cementing, securities analysts Tudor Pickering Holt & Co. called the allegations of faulty well work a "flash-in-the-pan that has created a buying opportunity" for Halliburton's shares.

Nearly all of Halliburton's Gulf of Mexico activity in the third quarter was tied to work done to help BP stanch the flow of its gushing well. But the company was able to offset its offshore business drop-off with tremendous growth this year in drilling in U.S. and Canadian onshore oil and gas shale fields.

The North American shale energy boom has bloated U.S. natural-gas supplies to near record levels this fall, pushing prices into a prolonged slump. But the intensive drilling needed to extract oil and gas from the rock formation has lifted the oil-field-service business out of recession.

Even if the gas surplus cuts into drilling, Halliburton Chief Executive David Lesar has said that the company will soon roll out new pricing plans aimed at bundling services to make drilling cheaper for core customers while preserving Halliburton's margins. That proposal caught analysts' attention last month and they will no doubt prod Halliburton executives for details on Wednesday.

Copyright (c) 2010 Dow Jones & Company, Inc.


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