Halliburton Posts Impressive Quarter
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Halliburton Co. (NYSE: HAL) reported impressive earnings for the quarter, with net income up 50%. This echoes competitor Schlumberger’s (NYSE: SLB) earnings from last week in which they posted a 36% increase in fourth quarter profits. Both companies benefited from growth in North American drilling, driven by a shift from natural gas to oil, and the relatively new hydraulic fracturing process, often referred to as fracking. Schlumberger is the largest oil field service provider, but Halliburton is the top seller of fracking services.
Fracking allows the companies to drill for resources that were previously too expensive to reach. The process uses highly pressurized water and chemicals to break up shale formations, freeing previously difficult to reach resources. The process has caused some controversy, but the company expects the process to continue being a revenue driver.
Halliburton reported $0.98 earnings per share for the fourth quarter, a penny short of the forecasted $0.99 per share, but overall the earnings report was very positive. North American revenue was up 56% and profit for the area was up 77%. Operating margin increased to 20.2% from 19%, and operating income grew in Latin America and remained basically unchanged in the Middle East. Operating income did fall in North Africa and Europe, but was expected given the unrest in both areas.
The company’s completion and production operation increased profits by 58% and its drilling and evaluation business increased profits by 35.6%. For the year revenue was $24.8 billion, an impressive 38.1% increase.
Schlumberger and Halliburton both expect oil prices to remain high unless the global economy falls into deep recession. They also both are shifting from natural gas to oil in North America, with natural gas experiencing a deep price decline due to oversupply. Both have also seen increased drilling in the Gulf of Mexico, and Schlumberger expects it to return to pre-Deepwater Horizon levels in the later half of 2012.
Domestic oil production has experienced explosive growth in the past few years, primarily on the strength of new drilling techniques. Halliburton and Schlumberger are both well positioned to capitalize on this growth and it should be reflected favorably in both stocks. Schlumberger is currently more expensive by PE, but both stocks should perform well barring a global recession. I am bullish on the oil services industry, particularly if we can escape a significant global slowdown.
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