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I have written quite a bit about Exxon Mobil (NYSE:XOM), and how I feel that the company is so well positioned in every aspect of the energy recovery business, which includes oil and natural gas. Another huge company is now positioned to regain its revenue and profit footing. I believe that Halliburton (NYSE:HAL) is on the cusp of surprising capital appreciation.

It's not about new oil field discoveries, or cutting production to reduce costs to fit demands. It isn't about any of those headline grabbing news flashes.

This is all about a little bean from India.

Major Cost Of Oil And Gas Recovery

One of the major costs involved in the recovery of both oil and gas is that of a bean found in India called "guar". The bean itself, when made soluble, creates a liquid gel of some form that helps keep the cracks open in shale rock when "fracked", or cracked open.

Unfortunately for the big energy companies, the cost of that little bean has gone up over 80% in just the first half of this year alone, as noted in this article.

Far from the gas fields of the U.S., a tiny bean is causing hydraulic-fracturing proponents more worry than a gaggle of environmental activists. Known as "cow food" by India's Hindi speakers, the Guar bean puts the fracturing in hydrofracking. But now companies such as Halliburton are racing to find an alternative as the country's dry season has pushed prices of the rain-loving guar up 80% during the first half of 2012.

Since the process of keeping that shale open makes up 75% of the cost of recovery, an 80% increase in the cost of the product that makes that process possible is an astronomical drain on the profits of any energy company. So the increase in natural gas prices has been made almost null and void by one little guar bean from India. This also impacts the costs of oil recovery, but with the hefty prices of oil, the rise in price of the guar bean is more readily absorbed.

Halliburton To The Rescue?

With the earnings of Halliburton themselves being crunched, the company jumped on the bandwagon to find a substitute for the guar bean so that not only could its own costs be contained, but it could offer the proprietary product to other energy companies, and hopefully create more revenue and greater profits for itself. A win-win situation for Halliburton for sure.

As this article notes:

In June, two guar alternatives were trademarked in Texas. Finding a more inexpensive solution could be valuable for the companies offering them. Baker Hughes, Inc. replaced 5 percent of its guar with AquaPerm, and recently announced its shares may double in value by the end of the year. Meanwhile, Halliburton announced in June it's second-quarter North American profits would fall to between 19.5% to 20%, the BBC reported. The oil-drilling company said fear of a guar shortage had increased "prices more rapidly than previously expected." Just days later, Halliburton trademarked PermStim, its own guar substitute.

According to Reuters, PermStim is now used in around 40 of Halliburton's U.S. wells.

Obviously this is just the start, and Baker Hughes (NYSE:BHI) has also developed a substitute called "AquaPerm", which has now replaced about 5% of the company's guar bean requirements. Several other companies are in the mix as detailed here as well.

We like Halliburton here because the stock is on sale and the fundamentals are great.

A Huge Blue Chip At A Discount

Halliburton: Price: $34.92/share, Dividend Yield: 1.10%, ESS Rating: Bullish

(click to enlarge)

Halliburton Company (<a href='http://seekingalpha.com/symbol/hal' title='Halliburton Company'>HAL</a>)

On July 25th, 2011 the share price stood at $57.27/share. It has been virtually downhill ever since. The stock price has taken an approximate 40% hit. Halliburton's forward guidance has been reduced and shareholder value has suffered. That being said, Wall Street analysts have a more favorable forward-looking opinion of the company.

Out of 29 analysts covering the company, 10 have issued a strong buy rating, 14 have issued a buy rating and five have issued a hold rating (as per Yahoo Finance). It would appear that we might have a bargain on our hands.

If this substitute of the guar bean is a success, then all bets are off as to where the share price can go to. I believe it can easily re-visit last year's highs of $57.00/share, if not higher.

Why?

That is what happens when costs are dramatically reduced and revenues and profits dramatically increase. All because of a little bean from India.

Guar crop is seen growing in a field at Shinoli village in the western Indian state of Gujarat April 3, 2012. REUTERS/Amit Dave

Source: Halliburton: A Large Cap Blue Chip Selling At A 40% Discount

Additional disclosure: I will be opening a position in HAL within one week.