Halliburton tumbles as fracing giant sees second-half slowdown

By David Wethe on 7/23/2018

HOUSTON (Bloomberg) -- Fracing-services king Halliburton Co. plunged the most in almost three years after warning that second-half profits will suffer on a slowdown in the Permian shale and other parts of the U.S.

The Houston-based oilfield service company dropped as much as 7.6% in New York trading for its biggest decline since August 2015. The company on Monday reported a weaker-than-expected operating profit in the second quarter, and CEO Jeff Miller told analysts on a call that he expected similar results in the third quarter.

Pipeline shortages and other issues will delay work in the Permian and Marcellus shale basins, Miller said. Halliburton, the world’s biggest frac provider, is facing a double whammy in North America with the Permian headed for a temporary slowdown and the company’s chief rival, Schlumberger, ramping up competition in Halliburton’s home market.

“People definitely expect the pause in the second half, but you need a substantial beat in 2Q to start from a new level,” Luke Lemoine, an analyst at Capital One Securities, said Monday in a phone interview. “We all know the second half is coming down, but you want to come down from a higher level.”

Halliburton’s oil-service peers also dropped on the disappointing outlook, headed by a 7.4% plunge for Patterson-UTI Energy.

The company announced a $789 million second-quarter operating profit that fell short of the $816 million average estimate from 14 analysts in a Bloomberg survey. Halliburton had been a consistent outperformer in most earnings measures until now.

Thanks to the Permian basin, North America has been the world’s growth engine, leading the global oil industry out of the worst crude crash in a generation. That’s allowed Halliburton and its peers to push up pricing for everything from drilling to fracing and even the grains of sand that prop open rocks for the oil flow.

Schlumberger posted a $0.43/share profit on July 20 that matched analysts’ estimates. Baker Hughes, the No. 3 player in oilfield services, fell short of expectations. Still, both companies expressed optimism that a global recovery in demand for their expertise and gear will yield tangible financial benefits by the end of this year.

The U.S. fracing market was already fully recovered from the rout as recently as last month, having employed 480 fleets of rock-crushing pumps throughout the industry in June, according Primary Vision Inc. That’s more than triple the number of crews fracing in the U.S. two years ago and already eclipsing pre-bust levels in 2014.

Halliburton reported an operating profit of $669 million in its completion and production unit, which houses the world’s biggest fracing business. That’s less than the $711 million that Lemoine said he was looking for.

North America Sales

In North America, the company’s largest region, sales expanded 38% from a year earlier. It’s third-straight quarter that year-over-year revenue growth shrunk from the previous period.

The results were posted before the start of regular trading in New York. Halliburton shares are down 7.5% this year, lagging the 14% growth in West Texas Intermediate, the U.S. crude benchmark.

"We were hoping a Q2 print better than market expectations would be just what doctor ordered to jumpstart some HAL stock relative outperformance this summer," analysts at Tudor Pickering Holt & Co. wrote Monday in a note to investors. "But these in-line results likely won’t be that catalyst."

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