By Matt Daily and Braden Reddall
July 23 Halliburton Co posted a
quarterly profit on Monday that topped Wall Street forecasts,
helped by increased activity outside North America, where it
expected margins would start recovering by early next year.
Shares of Halliburton, the world's second-largest oilfield
services company behind Schlumberger, rose 2.5 percent
despite a decline in oil prices weighing down the sector.
Halliburton had warned last month that a shortage of guar
beans in India would depress margins at its pressure pumping
operations in shale fields, a key profit driver for the company.
Guar, which is also used to make sauces and ice cream, is a
key part of the hydraulic fracturing fluids that have been in
high demand due to a boom in U.S. drilling and well development.
Chief Executive David Lesar said on a conference call that
the company's decision to stockpile guar over the quarter meant
it would be absorbing the higher guar costs for the rest of the
year, even though prices were now declining. He referred to the
elevated guar costs as like moving a "pig through the python."
"With 20/20 hindsight, simply put, we made the wrong
decision. The result is we bought too much guar too early and
paid too much for it," Lesar said. "I want to be clear with you
-- I supported and agreed with the decision to secure the
strategic guar reserve, and I will take the heat for it."
Halliburton has said previously that the guar system can
account for as much as 30 percent of the overall fracking price.
The shortage hurt earnings at its industry-leading fracking
business and pulled profits slightly below the year-ago level.
That compared with the results from Schlumberger and Baker
Hughes Inc, which both posted higher profits on Friday,
also lifted by strength outside North America.
COULD HAVE BEEN WORSE
Still, Halliburton's North American results were not as weak
as many company watchers had feared.
"North American margin degradation was less than expected,"
Barclays analyst James West said in a note to investors. At its
current share price "we believe Halliburton represents
Halliburton has benefited from its leading position in North
America in recent years as oil and gas producers poured money
into developing shale fields, although its rising costs and a
steep drop in natural gas prices have crimped profits this year.
Net profit slipped to $737 million, or 79 cents per share,
from $739 million, or 80 cents per share, a year before. Profit
from continuing operations was 80 cents per share, beating the
75 cents that analysts on average had forecast, according to
Thomson Reuters I/B/E/S.
Revenue rose 22 percent to $7.2 billion, well above the
$6.96 billion analysts had predicted.
A drop of the nearly 5 percentage points in North American
margins was partially offset by increased profitability in other
markets, particularly Europe, Africa and Russia and other former
Soviet states. Guar accounted for about two-thirds of the margin
depression in North America, Halliburton said.
Halliburton earned more than three-quarters of its 2011
income in North America, compared with about 40 percent for
"North America is still going to be a good market for
Halliburton and international will be where the growth comes
from," said Scott Gruber, an analyst with Sanford Bernstein in
New York, though he added that he preferred Schlumberger shares.
Overall, Halliburton's plans are unchanged. It is targeting
$3.6 billion to $3.8 billion in capital expenditure this year --
tightening the range from $3.5 billion to $4 billion previously.
Halliburton's shares, down 11 percent in 2012 through
Friday, gained 2.5 percent to $31.58 in morning trading.
Schlumberger was down 1.2 percent, retreating from its two-month
high on Friday.