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UPDATE 2-Halliburton sees bigger North America Q2 cost hit
June 6, 2012 / 6:16 PM / 5 years ago

UPDATE 2-Halliburton sees bigger North America Q2 cost hit

* Sees Q2 margins down 5-5.5 percentage points vs Q1

* Halliburton shares down 4 pct, Baker Hughes down 2.5 pct (Adds Halliburton’s previous 2012 outlook, analyst’s comment, Schlumberger impact, byline)

By Braden Reddall

June 6 (Reuters) - Halliburton Co, the world’s second-largest oil services company, said higher costs would have twice as big an impact on its North American profit margins this quarter than it expected, and its shares fell 4 percent to an 8-month low.

The cause of the cost escalation is pricier guar gum, an agricultural commodity used in hydraulic fracturing fluids and in high demand because of the surge in U.S. well development. Halliburton has said the guar system can now account for as much as 30 percent of the overall fracking price.

“They’ve been passing along the cost incrementally, but because there’s been such a burst in pricing, it’s been hard to keep up with,” said Grant Fox, analyst at Sterne, Agee & Leach.

Farmers in dominant guar producer India are scrambling to meet the demand for their crop from the other side of the world, and prices are expected to ease by 2013.

“The price of guar gum has inflated more rapidly than previously expected due to concerns over the potential for shortages for the commodity later in 2012,” Halliburton said in a statement on Wednesday.

It now expects its second-quarter North American operating margins to drop between 5 and 5.5 percentage points from the first-quarter level of 25 percent, which is 3 percentage points more of a drop than it expected in April.

That puts the margins down below the low 20 percent range that the company had expected them to hit later this year.

Sterne Agee’s Fox also expected the pricing impact of guar would likely begin easing later this year, or in early 2013.

Shares of Halliburton, which had risen nearly 2 percent before the news, fell 4 percent to $27.95, their lowest level since last October. Shares of Baker Hughes Inc also erased early gains and were down 2.5 percent at $40.07 after the warning from its larger rival.

Shares of industry leader Schlumberger Ltd, which unlike the other two makes most of its money outside North America, edged lower but were still 2.4 percent higher in afternoon trading.

Reporting by Braden Reddall in San Francisco; Editing by Gerald E. McCormick, Bernard Orr and Richard Chang

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