Halliburton CEO defends fracing business as margins disappoint

By David Wethe on 10/23/2017

HOUSTON (Bloomberg) -- Fracing isn’t looking so great for the world’s biggest fracer, but the CEO of Halliburton Co. says he can pull some levers to improve profits.

After lackluster margins for the company’s main business sent shares tumbling, casting a cloud over third-quarter earnings that otherwise beat estimates, CEO Jeff Miller said there are three things he plans to do to improve fracing profits: raise prices, maximize the use of machinery and cut costs.

"Increasing pricing is important, but it’s just one component we can leverage to reach our goal," Miller told analysts and investors Monday on a conference call. "Ultimately we will utilize a combination of all three levers to return to normalized margins."

In his first full quarter as CEO, Miller has sought to reassure investors that Halliburton is well-positioned to rebound from the worst oil-market collapse in a generation. A plunge in oil exploration exacted $5.76 billion in losses last year, the Houston-based company’s darkest year since at least 1987.

Halliburton shares tumbled as much as 2.2%, and were 1% lower at $42.90 as of 11:37 a.m. in New York. The stock had climbed as high as $45 before the opening of regular U.S. trading.

Investors are “curious” about the margins with demand seemingly on the rise, Kurt Hallead, an analyst at RBC Capital Markets, said in a note to clients.

"I think the market is getting a little anxious why pricing isn’t moving up higher,” J. David Anderson, an analyst at Barclays, said Monday in a phone interview. "It was a bit of a disappointment, but it was far from any disaster."

Sales in North America, the world’s busiest drilling region, nearly doubled during the third quarter to $3.2 billion, bucking the pessimistic outlook of rival fracing companies who last week predicted slower growth from the U.S. and Canada. Excluding one-time items, Halliburton’s worldwide third-quarter profit of 42 cents a share exceeded every one of the 34 estimates from analysts in a Bloomberg survey.

“The important thing here is that they did have a beat,” Luke Lemoine, an analyst at Capital One Securities in New Orleans who rates the shares a buy and owns none, said in a phone interview. “When you have other companies coming in inline or with slight misses and estimates are being lowered, I don’t see a real risk of 2018 being lowered for Halliburton.”

The company earned $365 million during the period, compared with $6 million a year earlier, according to the statement. Total revenue of $5.4 billion was $101 million higher than the average estimate from analysts.

Halliburton is the largest provider of fracing, the well-completion technique that blasts water, sand and chemicals underground to release trapped hydrocarbons. When combined with other services such as drilling and cementing wells, the company is the world’s No. 3 oilfield contractor.

“Our North American business is hitting on all cylinders and our international business proved resilient in a challenging environment,” Miller said Monday in a statement announcing third-quarter financial results.

Schlumberger Ltd. and Baker Hughes, the world’s biggest oilfield service companies, said last week that North America’s growth engine is slowing. The investment appetite by U.S. and Canadian explorers “seems to be moderating,” with the top priority now being cash preservation rather than production growth, Schlumberger said in an earnings statement on Friday.

U.S. explorers last week curbed the number of rigs drilling for crude for a third straight week amid the growing realization that more sophisticated and powerful equipment means less than half as many rigs are required to meet growth targets as would have been needed during the pre-2014 boom years.

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