Halliburton Sees Robust Outlook despite Lower 3Q Earnings Estimates

Houston-based oilfield services firm Halliburton maintains a robust outlook for energy services both in North America and internationally as global energy demand is expected to increase through 2030.

The guar gum shortage will continue to impact Halliburton's business with about 200 basis points of margin deterioration in the third quarter for a cumulative 2012 impact on North American margins of about 600 basis points, said Mark McCollum, executive vice president and chief financial officer of Halliburton, at the Barclays CEO Energy Power Conference Tuesday in New York.

While new crops of guar have been planted in India and rain has been failing, Halliburton won't have a good perspective on how guar gum will continue to impact its business as 2013 approaches, said McCollum.

However, the company has had success getting customers to adopt PermStim as a guar substitute in the third quarter after its introduction in the second quarter.

Halliburton is expecting revenue for its North American operations to be down "mid-single digits" sequentially in this year's third quarter as a result of the decline in the U.S. rig count, lackluster Canadian market recovery from the spring breakup, and persistent pricing weakness in stimulation, said Barclays analyst James C. West in a Sept. 4 note offering feedback on the conference. This compares with roughly flat guidance previously.
Despite the anticipation of lower third quarter revenue, Halliburton remains Barclay's top pick for stocks among the energy services group, West said.

"North American margin degradation is slowing and margins could potentially bottom in the near term, while international growth is accelerating and margins abroad are expected to steadily improve," said West. "As the market gains comfort in both of these trends, we expect Halliburton's relative and absolute multiple to improve."

However, the company sees significant potential for growth internally, and believes the changes in the North American oil and gas market will play to Halliburton's strengths, said Tim Probert, president of strategy and corporate development.

Deepwater, growth in unconventional plays, mature assets and rising service intensity are key focus areas for Halliburton as it moves forward, said Probert.

The company has been consolidating its deepwater position in evaluation and reservoir analysis and expanding its leadership position in high temperature, high pressure applications, said Probert.

Halliburton has also been seeking to reinvent a "superior" unconventional delivery model to lower cost per barrel of oil equivalent and executing a reservoir-centric technology strategy to assist its customers in improving efficiency and well productivity in North America.

The company is seeking to build its international unconventional franchise, but it will take some time for this business segment to move to scale, said Probert.

The need to enhance production from mature assets is also creating opportunity for Halliburton to round out its portfolio of international growth opportunities.

"Mature assets are ubiquitous," said Probert. "Everyone has mature assets, but they don't perform to expectations."

For customer trends, Halliburton is seeing international oil companies who are committed to both deepwater and unconventional oil and gas programs and national oil companies seeking access to unconventional technology and expertise, Probert noted. Independents are focused on efficiency in North America and international exploration.

To address mature assets, Halliburton is investing in technology to enhance recovery, applying its consulting expertise to address mature field redevelopment, and integrating mature asset-focused acquisitions, said Probert.

Over the past three years, Halliburton has sought to expand its global technology footprint to allow for better integrated project execution as service companies are expected to take a greater role in project planning and execution.

The company is building manufacturing centers in Latin America and Singapore to try and move more of the technology development offshore and support customers internationally and "align operations closer to where the supply basins are," said McCollum.

"By doing these two things, we're lowering the overall cost and allowing ourselves to move more nimbly [in response to customer needs]," said McCollum.

The globalization of its technology footprint is part of its efforts to achieve superior integration of services as workflow development drives efficiency and differentiation and rapid growth occurs in integrated project execution.

Halliburton has outperformed competitors Schlumberger and Baker Hughes in terms of North America and international growth from first quarter 2010 to second quarter 2012, McCollum noted.

The company has outperformed its competitors by investing efficiently in assets, developing products with a specific purpose instead of on a speculative basis.

Though the company is still dealing with liability issues associated with the Macondo incident in April 2010, the company has sufficient resources to improve its overall capital profile with shareholder friendly activities, said McCollum.


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