Why Did Halliburton Post Better Than Expected Results?

Jul.24.12 | About: Halliburton Company (HAL)

Halliburton Co (HAL) is the second largest oil and gas service company in the world, and is the largest provider of hydraulic fracturing services in North America.

Results

Halliburton Co 's 2Q2012 earnings result of $0.80 per share beat mean analyst estimates of $0.75 per share by a 6.8% margin. HAL's second quarter earnings showed a slight decline compared to $0.81 per share for the same period last year, and a decline of 10% from the previous quarter.

Consolidated revenues for the second quarter were up 5% at $7.2 billion, as compared to $6.9 billion in the preceding quarter, and $5.9 billion in the same period last year; showing an increase of 22%.

The international segment revenue and operating income witnessed double digit growth from all regions. However, North American margins were adversely affected by the rising input costs.

International Segment

International rig count showed an increase of 3% sequentially, while international consolidated revenues witnessed an increase of 15%.

Latin American revenue and operating income increased 13% as compared to the first quarter, while rig count increased by 1%. The results showed an improvement due to increased activity and better pricing in Mexico and Venezuela.

Revenue from the Eastern Hemisphere increased 15% as compared to the rig count gain of 5%, compared to the previous quarter. Revenues were up 23%, while rig count increased by 8% as compared to the same period last year.

Africa/CIS/Europe showed a strong recovery from seasonal weather impact witnessed in the preceding quarter.

Asia/Middle East regions showed a recovery from the seasonal weather experienced in Australia, as well as sales rebounding in China.

North America Segment

Revenues in North America remained flat, while the rig count decreased 17% as compared to the preceding quarter. The rig count in Canada dropped 70% due to the annual spring break up, while the rig count in the U.S. decreased 1% as compared to the preceding quarter.

The shift from gas to liquid-and-oil plays has continued in the quarter, and liquid-and-oil directed activity accounted for more than 70% of the rig count at the end of the second quarter, while natural gas directed rigs reached a 12-year low.

Operating profit for the second quarter witnessed a decline of 19% as compared to the preceding quarter, due to the high cost of guar gum, which is an essential input for hydraulic fracturing. The negative impacts were partially offset by improved activity in the Gulf of Mexico.

HAL acquired high quantities of guar gum at high prices, and the management has expressed regret over the decision. This has been an essential factor in reduced operating profit in the quarter. Beginning next year, the new crop will arrive, which is expected to reduce the crop's prices.

Developments for the Quarter

  • HAL and Gazprom International announced the signing of a Strategic Cooperation agreement.
  • HAL achieved a milestone and rolled out the first production units of the new Q10 pump.
  • HAL introduced PermStim, which is an alternative fuel to its current guar gum input. PermStim is cleaner, more robust, offers better performance and more cost effective treatments.
  • Introduced SperryDrill® XL/XLS and GeoForce® XL/XLS to its positive displacement drilling motors.
  • Announced the introduction of an integrated package of products and services to aid operators in developing reservoirs challenged by high equivalent circulating density (ECD).

Earnings Announcements for other Major Oil and Gas Service Providers:

Schlumberger Ltd (SLB)

Schlumberger Ltd , the largest oil and gas service company in the world, reported second quarter earnings of $1.05 per share, 7% higher than earnings of $0.98 per share for the preceding quarter. Earnings for the second quarter were 5.2% higher than the mean analyst estimates of $0.99 per share, due to the company's increased exploration for oil in international markets; while operating profit dropped in North America.

Baker Hughes Inc. (BHI)

Baker Hughes Inc. , the third largest oil and gas service provider, announced earnings of $1 per share, which were 16% higher compared to $0.86 per share for the preceding quarter. Earnings for the second quarter beat mean analyst estimates of $0.77 by 30%, due to reduced cost and better utilizations in its North American hydraulic fracturing business.

To view detailed reports on Halliburton Co and Schlumberger Ltd , please visit the following links:

  1. Buy Halliburton: The Worst Is Priced In
  2. Buy Schlumberger To Benefit From The Upstream Oil And Gas Spending Cycle

Since the publishing of our reports, Halliburton Co is up 7.2% and Schlumberger Ltd is up 3.56%

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.