Halliburton On A Rampage

Jul.23.14 | About: Halliburton Company (HAL)

Summary

The world’s second largest provider of oilfield services showcased a 10% revenue increase, reporting $8.1 billion in total revenue.

Operating income increased 31% from Q1 as completion volumes for each well increased by more than a third, (35%) year over year.

Halliburton takes on issues in the Middle East, Russia and in Regions of South America.

Earlier this week Halliburton Co. (NYSE:HAL) reported Q2 EPS of $0.91, which is precisely what the analysts had estimated for the oilfield giant. The quarter's revenue trumped the $7.88 billion consensus estimate as Halliburton (NYSE:HAL) posted an impressive $8.1 billion on the top line. The world's second largest provider of oilfield services showcased a 11% revenue increase, which exceeded expectations.

Halliburton's business has been on a rampage of late, with activity and revenue shattering records. The company's strong showing has heralded the recovery of the industry following a two-year slide. And experts believe that Halliburton's growth would be on the up with a prognosticated CAGR of 12% in the next five years.

North American hegemony

The primary reason for the company's growth of course has been its business in North America, which possesses more than half (52%) of the global oilfield services' share, and looks set for a continuous upsurge in demand. Even though each of the Big Four of the North American oil realm - Halliburton, Schlumberger (NYSE: SLB) Weatherford (NYSE: WFT) and Baker Hughes (NYSE: BHI) - would be reaping the rewards of their presence in the region, it's Halliburton that is leading the pack. This is owing to the company integrating technologies and capabilities masterfully, executing its drills with precision and enhancing its efficiency by manifold in recent times. Halliburton's programs of efficiency are maneuvered by a culture focusing on ROIC, and all these factors should continue to come together and result in impressive growth in rig counts and revenue.

Halliburton's revenue for the second quarter in North America was up 11% with the operating income rising by 31% as compared to the year's first quarter, which reflects the company outdoing the American land rig count increase of 4%. The service intensity levels have been expanding in the region, with completion volumes for each well increasing by more than a third (35%), as compared to the same quarter last year.

Halliburton's hierarchy expects its North American activity to continue to grow, with margins expected to touch down on the 20% mark in the next quarter. These expectations are further bolstered by the company enhancing its logistics prowess and augmenting the hydraulic fracturing fleet.

Halliburton's North American hegemony is also rubber stamped when one juxtaposes its margins with the other big names. SLB stands at 18.2% as far as margins in North America are concerned, while BHI is at 12%.

Global Rise

Halliburton's growth in the Eastern Hemisphere has been pretty impressive as well. Compared to the previous quarter, there has been an increase in regional revenue of 9% with operating income jumping up 26%. Experts predict the year's revenue growth in the Eastern Hemisphere for Halliburton to be in the lower double digits with the average calendar year margins moving toward the 20% mark.

As far as the Middle East/Asia region is concerned, the regional revenue has jumped up 11% with the operating income increasing 25%. As expected it was Saudi Arabia that was the vanguard of the growth, and the experts expect the region to have the highest rate of growth this calendar year. This is despite the ongoing crisis in Iraq.

The Europe/Africa/CIS region saw increases of 6% and 27% in sequential revenue and operating income respectively. Most of the growth owes itself to the Russian recovery in the North Sea coupled with the sub-Saharan gains.

Contrasting Fortunes in Latin America

While revenue rose 4% in Latin America, the operating income took a 39% nosedive. Even though the prospects of Mexican Energy Reform were touted as being encouraging, the rig count almost touched an all-time low during the second quarter. This is primarily owing to the delay in the receipt for the blanket order for the company's consultation and project management work, and the high expenditure in Mexican integrated projects. However, experts are of the opinion that these issues would be turned around before the end of the year, eventually mirroring last year's numbers for Latin America. This opinion is further bolstered by the expected approval of the Mexican projects' billing and the resolution of the stalled Brazilian drilling contract. The general consensus is Halliburton's Latin American worries are temporary and that the company would post solid numbers in coming years.

Russia, Recovery and Resurgence

Halliburton has echoed Baker Hughes sentiments by reiterating that sanctions against Russia have not had any negative impact on the company's revenue. Even so, there's a chance that the projects that would be tendered this year might be impacted by the Russian sanctions. If the tensions surge and in case more sanctions are enforced, the business of the company would obviously be affected.

Russian sanctions definitely haven't impacted the resurgence of Halliburton and other oil companies, with a surge in fracking demand being witnessed after a decline of a couple of years. The prices look set to increase by 2% this year with a 4% hike expected next year.

Halliburton's decision on adding fracking crew and equipment on board for the North American expedition has led the recovery and resurgence of the oil industry in the region. That the demand has seen a massive increase is testament to investor confidence in Halliburton, which has led the oil resurgence in the region. Halliburton has also enhanced the share buyback authorization to $6.0 billion, from $4.8 billion. This is proof enough that the company is optimistic about its ability to generate cash flow in the near future.

Enhanced Integration

With virtually everyone talking about Halliburton's integration in the oilfield services industry, it is important to mention the contrasting relationship between oil companies and services providers compared to years gone by. In the past oil companies asked services providers to decrease prices to enhance their bottom line.

Things have changed now, with oil companies being cost-focused and requiring an improvement in their returns as far as the cost per barrel is concerned. This in turn propels the oil companies into reducing the suppliers and having them integrate their services to enhance efficiency and returns. This is one service provider-oil company symbiosis that has worked wonders for Halliburton's revenue and dividends of late.

Investor Interest

Halliburton's global strategy is on the right track and should see the company witness sustainable growth in deepwater, mature field and unconventional market, with North America being its most opulent zone. The strong financial showing has helped the company augment its shareholder distribution without negatively impacting its liquidity, which would bolster future growth.

Halliburton's board has sanctioned $4.8 billion worth of stock repurchase authorization to the new buyback capacity of $6 billion, reflecting the company's buoyancy and commitment to the distribution of its shareholders. It goes without saying that Hallibuton's numbers are only headed in one direction in the near future.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.