Halliburton Co (HAL.N) warned that its response to a deep slump in U.S. natural gas prices would cause near-term disruptions that will pinch first-quarter earnings, sending its shares down 3 percent.
The world's second-largest oilfield services company posted a higher-than-expected fourth-quarter profit and gave a fairly upbeat outlook for 2012, but investors remain worried about what wider U.S. drilling trends will mean for the U.S. market leader.
Costs are rising and the industry is shifting away from dry gas toward oil and natural gas liquids resources. Eight of its hydraulic fracturing - or "fracking" - crews would complete moves to liquids-rich basins this quarter, Halliburton said.
Chief Executive Dave Lesar, addressing a persistent concern that has weighed on Halliburton shares, said the idea that North American profit margins would collapse this year was "ridiculous."
Yet Halliburton's exposure to the U.S. market relative to rival Schlumberger (SLB.N) has also widened the gap in their respective market valuations. link.reuters.com/vas26s
"While the international margin outlook is more constructive than we had expected, the (North American) outlook, fair or unfair, will drive the stock," Simmons & Co analyst Bill Herbert said, citing Halliburton's improved outlook for margins outside North America, which should average in the mid-teens in 2012.
The company generally expected revenue would grow faster than oil and gas companies would drill this year.
"We are very optimistic about 2012 and fully expect that North America revenue and operating income will increase over 2011, although we could see margins normalize somewhat through 2012," Lesar said on a conference call.
His comments came as Chesapeake Energy Corp (CHK.N), the No. 2 U.S. natural gas producer, said it would cut back on drilling in dry gas areas as natural gas prices hover around 10-year lows.
Halliburton expects its own capital expenditure this year to rise to between $3.5 billion and $4 billion, compared with $3 billion in 2011.
Halliburton is the U.S. market leader in pressure pumping, which is used in the fracking process to extract oil and gas from shale. New technology has opened up vast new fields for production, creating a glut that may keep prices low for years.
The boom has also led to logistical challenges and shortages in certain fracking materials such as proppant, which was felt in the fourth quarter in the Rockies, Bakken, South Texas and Permian regions, Lesar said.
Overall, Halliburton's fourth-quarter profit rose to $907 million, or 98 cents per share, from $607 million, or 67 cents per share, a year ago. Excluding one-time items, it earned $1 a share, compared with the average analyst estimate of 99 cents, according to Thomson Reuters I/B/E/S.
Revenue rose 38 percent to $7.1 billion.
On Friday, Schlumberger reported a higher-than-expected quarterly profit, but gave an uncertain view of how this year will pan out.
Halliburton shares, which fell 15 percent in 2011, dropped 3.2 percent to $35.03 in morning trading on the New York Stock Exchange. Schlumberger shares were 1 percent higher.
Shares of smaller competitor Baker Hughes Inc (BHI.N), which reports earnings on Tuesday, fell 3 percent.
(Reporting by Matt Daily in New York and Vaishnavi Bala in Bangalore; Editing by Maureen Bavdek and Derek Caney)