Halliburton a value, Schlumberger pricey

By Anna Driver - Analysis

HOUSTON (Reuters) - Concerns about Halliburton Co's (HAL.N: Quote, Profile, Research, Stock Buzz) exposure to the North American natural gas market have caused investors to favor its larger oil field services rival, Schlumberger Ltd (SLB.N: Quote, Profile, Research, Stock Buzz).

But analysts say investors have been overly pessimistic about Halliburton and should note its efforts to expand internationally, as well as benefits from the divestiture of its engineering and construction unit, KBR Inc (KBR.N: Quote, Profile, Research, Stock Buzz).

In recent months, near record-high inventories of natural gas have depressed prices and weighed on shares of oil service companies with large markets in North America. Natural gas futures traded on the New York Mercantile Exchange have fallen about 20 percent since peaking in May.

Also, intense competition in pressure pumping -- which energy companies use to increase production of natural gas from hard-to-reach pockets in substances like shale -- has weighed on prices in the United States.

The world's largest oil services company, Schlumberger is trading at a price-to-earnings ratio (P/E) of 19.5 times estimated 2008 earnings, Halliburton at a ratio of 12, and third largest firm Baker Hughes Inc (BHI.N: Quote, Profile, Research, Stock Buzz) at a P/E multiple of 14, according to data from Reuters Estimates.

"I don't think I've ever seen as big a multiple between Schlumberger and Halliburton before," said Mark Urness, an analyst with Calyon Securities. "Schlumberger merits some premium, but it's certainly trading at the upper end of its range."

Urness has a "neutral" rating on Schlumberger.

Schlumberger has a P/E premium to other service companies partly because of its fast-growing seismic business WesternGeco and its greater exposure in international markets, where prices have stayed firm and growth prospects are seen as the best, analysts said.