Halliburton: North American market has turned: Update
"Today our customers are thinking about growing their business again, rather than being focused on survival," chief executive Dave Lesar said in an earnings call. "There is a spring in their step that I didn't see earlier in the year and in almost every case they are talking about adding rigs, buying assets or doing something value-accretive. In short, they are getting back to business."
Lesar's comments are among the most optimistic yet by a senior industry executive since crude prices plunged below \\$30/bl in the first quarter. The US rig count rose to 447 as of last week, from 404 rigs at the end of May — the lowest for nearly three decades, according to Baker Hughes data. A few producers like Pioneer Natural Resources and Devon have come forward to announce a step up in drilling later this year.
Expectations of a recovery in activity — despite a recent stall in rebounding oil prices — partly stem from an improvement in efficiency and technology the US oil and gas industry has achieved. Rigs have become at least 30pc more efficient, which means more wells per month. It also means a smaller number of drilling and fracking crew.
"In the next North America rig cycle, 900 is the new 2,000," Lesar said.
As drilling activity improves, the \\$3.2bn loss posted by Halliburton in the second quarter —compared with a profit of \\$54mn a year earlier — may mark the low point in the current downturn that began in mid-2014. It may also be a sign that profits for the rest of the industry have also bottomed out.
"We believe Halliburton's results should provide relief given concerns of weakness across the sector," analysts at Seaport Global said.
The optimistic outlook from Halliburton in its first earnings report since calling off a \\$35bmn merger with rival Baker Hughes is particularly important as investors were awaiting further updates on operations, margins and market share.
Halliburton booked a \\$3.5bn termination fees in the second-quarter after scrapping the deal in May that would have combined the world's second and third-largest services firms and closed in on the gap with global leader Schlumberger. The company is on track to meet its target set earlier in the year of saving \\$1bn "as we go in to 2017," Lesar said.
North American revenue fell by 15pc from the earlier three months to \\$1.5bn, beating a 23pc decline in average US rig count. But it fell by 43pc compared to a year earlier level of \\$2.7bn. Latin American revenue fell by 38pc to \\$476mn, while Europe, Africa and Commonwealth of Independent States (former Soviet Union) declined by 28pc to \\$795mn. The Middle East and Asia dropped by 24pc to \\$1.05bn.
Halliburton expects its Latin American business to remain weak. "Looking at our major countries, rig activity in both Brazil and Mexico is at 20-year lows, while Venezuela continues to experience significant political and economic turmoil," Lesar said.
By business segment, completion and production fell to \\$2.1bn, down 39pc from a year ago, with the majority of the decline driven by North American pressure pumping services. Its drilling and evaluation division declined by 30pc to \\$1.7bn as a result of the low rig counts, lower pricing and a global cut in customer budgets.
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