Halliburton Readies for Years of Expansion
(Bloomberg) -- For the first time in seven years, Halliburton Co., the biggest provider of fracking services, is expanding in both U.S. and foreign markets as spending recovers in the global energy industry.
“The economy feels more than 2% shut in, so the demand growth is there,” Chief Executive Officer Jeff Miller said Tuesday in an interview on Bloomberg TV. Drillers are “going to require a lot of services as we meet global demand for oil and gas.”
Exploration customers are profitable at current oil prices in the $60-to-$70 range, he said. Their spending could increase by percentages in the double digits over the next couple of years as a result.
The Houston-based contractor rose 5.8% Tuesday after reporting better-than-expected second-quarter earnings. The bullish outlook from the world’s No. 3 oil-services provider follows comments last month from its rival, Schlumberger, which said the global economic recovery will trigger an energy-industry “supercycle” that should lead to wider margins.
That represents a dramatic rebound for the sector, which was laid low last year by the pandemic and forced to lay off tens of thousands of workers. The three biggest companies -- Halliburton, Schlumberger and Baker Hughes Inc. -- all report earnings this week and are expected to boost profits by at least 20% compared with the first three months of the year, according to an average of analysts’ estimates compiled by Bloomberg.
On a conference call with analysts and investors earlier Tuesday, Halliburton executives said:
- North American oil output could expand by about 500,000 barrels a day next year
- Company margins should return to 2014 levels by 2023
- Private U.S. explorers will continue to opportunistically lead the growth while public companies balance growth and returns
Oil-services providers haven’t seen three straight quarters of share appreciation since the days of $100-a-barrel crude back in 2014. Now, as drilling accelerates around the world, the Philadelphia Oil Service Index is showing just that.
Halliburton reported second-quarter earnings per share excluding one-time items of 26 cents, exceeding the 23-cent average of analysts’ estimates, while revenue of $3.7 billion trailed the $3.75 billion average. Halliburton reported its largest North American quarterly sales since the onset of the pandemic last year.
Miller, who slashed more than $1 billion in costs during the downturn, reaffirmed an outlook for double-digit year-on-year growth in international orders during the second half of this year.
The shares rose 5.1% to $20.34 at 11:12 a.m. in New York, marking the best performance among oil stocks in the S&P 500 Index. After four consecutive annual losses that saw the company’s market value cut by more than half, the stock now has 16 “buy” recommendations among analysts, compared with six “holds” and three “sells.”
Among its largest peers, Halliburton is most dependent on North America, where it generates roughly 40% of sales. Fracking in the U.S. is expected to grow 7% in the current quarter before erasing those gains by the final three months of the year, according to Goldman Sachs. Explorers are forecast to boost spending by 20% next year, the bank said last week in a note to investors.
Exploration and production spending is widely seen as a proxy for future crude output because the budgets cover everything from drilling new holes in the ground to fracking and completing the wells for oil to flow.
Thanks to tightening supplies of various oilfield gear, Halliburton said it’s finally able to command higher prices for its work -- beyond the cost of supply chain inflation -- in certain pockets of the market.
“We’re negotiating up and not down,” Miller said on the conference call. “That’s sort of a different dialog than what we’ve had.”
--With assistance from Karen Lin.
© 2021 Bloomberg L.P.
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