Halliburton: Oil Prices May Depend on Russia

OPEC cuts haven't helped oil prices rebound yet. Russia is the largest non-OPEC producer of oil. Halliburton says if they curtail production significantly as well, oil prices could shoot up quickly.

From Halliburton Co.'s Q408 conference call: (HAL)

Declining oil prices have caused many of our customers to defer several of their international projects. We see the most volatile areas internationally to be the North Sea, Russia and exploration oriented projects. Some of you may be surprised to learn that our Russia business actually showed a 6% sequential growth from the third quarter. The growth came from continued adoption in Russia of our well construction technologies and was also bolstered by direct sales.

Operators have announced, however, a 25% decline in spending for 2009 and we expect to see some contraction of our business in Russia. However we continue to believe in the long-term prospects of this market and will align our business accordingly.

Despite negative demand trends it is worth noting that the industry supply issues impacted primarily by accelerating decline curves are more pervasive today than they have been in the past. Non-OPEC production fell in 2008 and is likely to decline in 2009. Russia, which accounted for the majority of the increase in non-OPEC production in the past decade contracted in 2008 and will likely do so again in 2009. Any period of under-investment driven by constraints in operator spending should lead to a resurgence in commodity price.

The industry will have to look to Venezuela too, like it or not:

Absent the major issues with respect to the current environment we have all been reading about I think that we will continue to see some expansion [in Venezuela].

Q: So you expect Venezuela for Halliburton and industry wide will be up year-over-year in 2009?

A: 2008 was certainly up year-over-year. I think the fundamental requirement is clearly there.

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Comments

[Ferdinand E...:]

Prime Minister Putin gave a talk at Davos the other day, and as compared to the favorite Russian of many in his audience - I mean the late Mr Yeltsin - he was stone cold sober, and made sense most of the time. Although he didn't dwell on energy, I suspect that he knows - just as I and every intelligent student of the energy markets must know - that in a world where energy may be more important than ever, Russia has a lot to offer.

Certain governments in OPEC are not too worried about the price of oil, since the movers and shakers in those governments are primarily interested in their personal fortunes, but Mr Putin is clearly concerned with making Russia what it could and should be, which is an economic powerhouse. At the present time this implies cooperation with OPEC, although it may be implicit.

It won't happen tomorrow, nor perhaps in a string of tomorrows, but in the long run there are many things that could work in favor of Russia. The most important of these is not, perhaps, cooperation with OPEC but with with the US; and now that ignoramuses like the former US ambassador to Sweden with be returning to obscurity, such a cooperation may be possible.

Jan 29 08:51 AM

[GMiki1:]

Oil prices can't continue to rest on popular sentiment and misinformation. If we want to use real oil in the real world, the prices will simply rise from here. Baby, it's cold out there.

Jan 29 11:01 AM

[jarco:]

While it may take several years to fully play out, the world’s appetite for oil is sinking rapidly. Emerging markets and speculators drove the price to $140’s and both are irrelevant at this point and for the next 2-3 years in my view.

About 45% of a barrel of oil becomes gasoline. Another 30% fuel oil goes for North-country home heating and diesel fuel. 10% is jet fuel, 6% worthless residue, 4% propane as gas liquids, 3% asphalt, with the balance is Naphtha, and other “solvents” used in industrial processes and chemicals. While some “fine tuning” exists, this fixed yield will cause some erratic price swings as one particular use (e.g. gasoline) declines due to electric/hybrid cars. For example, despite less consumption of one element, the same number of barrels would need to be imported to satisfy diesel or jet fuel uses. The excess gasoline will cause noticeable price declines prompting increased use along with correspondingly less attractiveness of alternative energy..

The bottom line, an ongoing need for imports, and more importantly, some controls as to component allocation. Specific component consumption, up to this point, been purely by happenstance.

Jan 29 11:50 AM

[mouth:]

We just blew the bailout. What could we have accomplished by spending the money on paying auto makers to make only 30/40 mph vehicles. Only build 4 and 6 cylinder cars. What other programs would have made us less dependent for our energy needs in transportation. Transportation is the issue, not the home

Jan 29 01:07 PM

[mouth:]

Sorry 30/40 mpg vehicles not 30/40 mph vehicles

Jan 29 01:08 PM

[globetrotte...:]

I remember when oil was $3 in early 1970s hit $50 in 10 years and was supposed to go to $100, instead it went to $6 in the 1980s, then stagnated for two decades, and soared to $147 in 2008. It was supposed to hit $200, but is now $41.

This time maybe conservation and alternatives will kick in for real, otherwise it's Groundhog Day all over again!

Feb 02 11:00 AM

[Nikola:]

It will be Groundhog Day all over again. We never learn. If we did, we would not have recessions every few years.

The best chance for alternative energy was blown with subprime and derivatives. Oil has to stay above $100 for a few years for the investment into alternatives to really kick in.

Now oil is at $40 mainly because demand is down. Once we get out of this mess (not so quick, but eventually), there will be demand for energy but not usable alternatives. And so people will use oil again. And oil will go up again.

In the mean time, do you see anyone screaming for solar and wind? No, it only happens when oil is expensive.

Feb 05 04:48 AM

[PeteK:]

Nikola;
You are not quite correct in your last paragragh. When oil is expensive ,
people are calling for the investigations of oil companies. Nobody call for any Solar or Wind power except a handful.
Agree, oil has to stay above $100 to get people to think otherwise.
Russia will sure do something to kick up the price soon.
Or Iran, in that matter.

Mar 02 08:31 AM