| SAN FRANCISCO/NEW YORK
SAN FRANCISCO/NEW YORK Strong results from Halliburton Co (HAL.N) and Weatherford International Ltd (WFT.N) on Monday helped send oilfield service shares soaring, but failed to allay industry-wide anxiety about the outlook for 2009.
The better-than-expected third-quarter results from two of the sector's top six companies were driven by international activity and greater North American demand. Both stocks rose sharply, also lifted by a 3 percent rise in oil prices on expectations OPEC will cut output this week.
Both companies, however, warned that the sharp drop in energy prices, particularly for natural gas, from their summer peaks could hurt profitability.
"If the price of hydrocarbon is down, albeit at a level that is still attractive but is down, obviously pricing power internationally is not going to be the same," Weatherford Chief Executive Bernard Duroc-Danner told investors on a conference call.
In recent weeks, all companies offering equipment and technology to help extract oil and natural gas have been hit hard as the economic slowdown hurts energy prices, threatening marginal exploration and production projects.
Halliburton said the announced reduction in some customers' capital spending would bring down its North American rig counts below previously anticipated levels.
Drilling contractor Nabors Industries Ltd (NBR.N) said on Monday, alongside quarterly results, that due to an expected drilling slump it would cut capital spending that was not tied to contracts or did not offer rapid returns.
"Nobody's making a call on where '09 goes," said Pierre Conner, an analyst at Capital One Southcoast, though he agreed with Halliburton's view that those operating rigs at reduced numbers in North America next year would be more likely to pay for services to increase well output.
Halliburton had a much better quarter for such services in its completion and production unit, which saw North American margins rise 2.6 percentage points from the previous quarter to 27.2 percent, offsetting a fall elsewhere. That was driven at least in part by lower costs, Conner said.
Halliburton CEO Dave Lesar said in a statement that while lower energy prices were likely to curtail drilling activity in North America, he expects most new projects to continue.
"We are cognizant that a worldwide recession would have negative short-term implications for demand," he said.
TOPPING WALL STREET
Excluding special items, Halliburton posted earnings of 76 cents a share on a 23.5 percent rise in revenue to $4.85 billion, comfortably exceeding analysts' average estimates of 74 cents and $4.62 billion, according to Reuters Estimates.
Including an acquisition-related charge and costs from the settlement of convertible debt, it posted a third-quarter net loss of $21 million.
The hurricanes that hit the Gulf of Mexico hurt results by 4 cents a share, but North America was strong despite that.
"The question now is how quickly North America volume and pricing retreats as smaller independents are hit with declining commodity pricing and a stricter credit environment," JPMorgan analyst Michael LaMotte said in a note to clients.
Halliburton said it was too early to give a clear outlook for 2009 capital expenditure or margins, but Weatherford said it would cut 2009 capital spending to between $1.5 billion and $2 billion from its previous expectation of $2.4 billion.
Asked about the potential impact of fewer rigs on margins, Weatherford said a decline of 400 rigs from the North American industry total of 2,449 in September would knock between 4 and 4.5 percentage points off margins. Weatherford's North American operating margin was 26.5 percent in the third quarter.
Overall, its quarterly earnings before special items rose to 55 cents a share from 43 cents, beating the average analyst expectation of 53 cents. Revenue rose 29 percent to $2.54 billion, also topping the Wall Street average.
Earlier on Monday, Morgan Stanley, Deutsche Bank, FBR Capital Markets and Natixis Bleichroeder all cut sector profit estimates in light of last week's warning from Schlumberger Ltd (SLB.N) of lower anticipated spending by clients in 2009.
At Friday's close, Halliburton had lost 52 percent of its value in 2008, in line with the Philadelphia Stock Exchange oil services index .OSX. Schlumberger shares, which at more than 10 times 2009 estimated earnings had traded at twice that of Halliburton before Friday, rose 11.5 percent on Monday.
Halliburton shares rose 14 percent to $20.80 on the New York Stock Exchange and Weatherford surged 15.5 percent to $16.96.
(Editing by Lisa Von Ahn, Susan Kelly and Matthew Lewis)