Halliburton raises dividend as it trims oilfield costs

Wed Nov 6, 2013 1:23pm EST

The company logo of Halliburton oilfield services corporate offices is seen in Houston, Texas April 6, 2012. REUTERS/Richard Carson

The company logo of Halliburton oilfield services corporate offices is seen in Houston, Texas April 6, 2012.

Credit: Reuters/Richard Carson

(Reuters) - Halliburton Co (HAL.N) on Wednesday increased its dividend by 20 percent as the oilfield services company laid out plans to boost North American profit margins by 2 percentage points next year through cost reductions alone.

Halliburton shares jumped 2 percent after the dividend announcement at a meeting between company executives and analysts. Pricing in the North American oilfield market remains competitive due to spare service capacity, as a natural gas production glut forced operators to scale back plans, the executives said.

But they said Halliburton, the regional market leader, has invested in efficiency improvements and plans to raise margins in the region by 2 percentage points over the course of 2014 from 17.8 percent last quarter, part of a 5 point increase over three years.

Any improvements to margins from higher pricing or rising rig counts in North America would come on top of that rise, Chief Executive Dave Lesar explained.

"The five points is just going to come from the efforts we outlined today," he said, calling the push a "multiple-year pay-off" for the business. "We have some 30,000 employees in North America - this is not a trivial exercise."

Halliburton said it would raise the dividend to 15 cents per share for the fourth quarter. The ensuing 2 percent rise in the company's stock price came on top of a 5 percent rise in the two weeks ahead of the analyst meeting.

The increased payout is part of the company's ultimate goal of returning 35 percent of its operating cash flow to shareholders, Chief Financial Officer Mark McCollum said.

Halliburton, the No. 2 oilfield services company worldwide behind Schlumberger Ltd (SLB.N), also aims for a return on capital employed of 20 percent in 2016, compared with an estimated 11 percent for this year.

Among other goals, executives committed to tripling the revenue Halliburton earns from its mature fields business to $9 billion by 2016, while expanding in deepwater at least 25 percent faster than the market growth rate.

Eric Carre, senior vice president for drilling and evaluation, cited industry estimates for deepwater market growth of 11 percent annually through 2018, with 62 percent of the new wells to be drilled in the so-called Golden Triangle: Brazil, West Africa and the Gulf of Mexico.

Over the past three years, Carre said the deepwater market's compound annual growth rate was 13 percent, against 31 percent for Halliburton. To achieve that, it invested $1 billion and increased its Golden Triangle staff by 35 percent.

McCollum said a move toward generating a majority of the company's revenue outside North America would help shave another 1 to 1.5 percentage points off its effective tax rate, after reducing it by 3 percentage points this year.

In its home market, Halliburton spelled out the huge potential for efficiency improvements by giving the example of one fracking crew. It said that in handling 332 fracking stages, the crew used 888 truck-loads of proppant, a mix of sand or ceramic spheres used to crack the rock and pry it open freeing up the hydrocarbons. The crew also used 200 rail cars and 52 million gallons of fluid.

Halliburton's "frac of the future" effort that it is rolling out requires 35 percent less personnel and cuts completion time by 40 percent, instead of the 25 percent it had targeted, while reducing maintenance costs by half.

(Reporting by Braden Reddall in San Francisco; Editing by Gerald E. McCormick, John Wallace and David Gregoroi)