Monday, April 21, 2008

Halliburton Profit Rises After Oil Climbs to Record

Halliburton Profit Rises After Oil Climbs to Record

By Jim Kennett

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Halliburton Co., the world's second-largest oilfield contractor, said profit rose 5.8 percent after crude topped $100 a barrel, prompting producers to increase spending on Middle East and Latin American projects.

First-quarter net income climbed to $584 million, or 64 cents a share, from $552 million, or 54 cents, a year earlier, the Houston-based company said today in a statement. Halliburton shares fell after the company said increased competition was squeezing prices on large overseas projects.

The number of drilling rigs active outside North America rose 6.5 percent as New York oil futures traded 68 percent higher than a year earlier. Revenue jumped 18 percent to $4.03 billion as sales gains outside North America made up for pricing pressures in the U.S., Halliburton said.

“The story with Halliburton is international, and the international story is supported by sharply higher oil prices,'' said Gene Pisasale, who helps oversee $25 billion in assets, including about 682,000 Halliburton shares, at PNC Capital Advisors in Baltimore. “That bodes well for international exploration, much of which is oil-oriented.''

Competition from rival oilfield contractors is affecting the prices Halliburton can charge on long-term projects in such markets as the Middle East and West Africa, Chief Executive Officer David Lesar told investors on a conference call. Losing a bid can mean the company is out of business in that region for a number of years, he said.

Margin Concerns

Those comments and concern over rising diesel costs, which are narrowing profit margins on some well services, pushed the company's stock lower, said Mark Urness, an analyst at Calyon Securities USA Inc. in New York.

Halliburton fell 65 cents, or 1.4 percent, to $46.78 at 11:31 a.m. in New York Stock Exchange composite trading. Before today, the shares had jumped 25 percent this year, seven times the gain by Schlumberger Ltd., the biggest oilfield contractor.

Halliburton's per-share profit matched the average of 10 analyst estimates compiled by Bloomberg. Earnings from the company's largest division, which helps clients maximize production from established fields, rose 11 percent.

Demand strength in the Middle East and Latin America made up for a 2 percent decline in North American business and a “relatively flat'' environment in Europe, Africa and the former Soviet Union, Halliburton said.

`Next Leg Up'

Lesar, 54, said more demand growth is coming. “The fundamentals of the world oil and gas market are projecting that the next leg up in the extended cycle is near,'' he said in the statement.

Schlumberger, based in Houston and Paris, on April 18 reported a 13 percent gain in first-quarter net income. Baker Hughes Inc., the No. 3 oilfield-services company, is scheduled to report its results tomorrow.

Halliburton's profit from drilling and evaluation services climbed 6.1 percent. The segment includes drill-bits, drilling fluids and directional drilling, which allows a customer to change the direction of a well to target a reservoir.

Worldwide, the number of active rigs rose 2.4 percent from a year earlier, with most of the gains occurring in South America and the Eastern Hemisphere, according to a count by Baker Hughes. North American drilling activity climbed 1.4 percent, driven by a 2.1 percent increase in the U.S.

International Expansion

Halliburton is adding research and training centers from Russia to Singapore as it diversifies away from North America, which accounted for 47 percent of revenue last year. U.S. and Canadian business is dominated by regional natural-gas markets, where weather can cause prices to surge or plummet.

Lesar splits his time between the U.S. and Halliburton's regional corporate headquarters in Dubai. The Eastern Hemisphere accounted for 41 percent of Halliburton's first-quarter revenue. Lesar has said he'd like the region ultimately to account for half of sales.

Halliburton derived 54 percent of its profit from North America in the first quarter, down from 58 percent a year earlier. Latin American operations had a 45 percent increase in earnings. Brazil's recent deepwater discoveries, fields called Tupi and Carioca, will fuel increased spending by oil companies, PNC's Pisasale said.

“With the recent developments in Brazil, you're going to see a lot more activity down there,'' he said. “The Tupi and the Carioca discoveries, which are particularly huge, multibillion-barrel fields, bode well for service companies like Halliburton and Schlumberger.''

State Oil Companies

Overseas work is being driven by government-owned oil companies that increasingly hire Halliburton and other services providers to do work previously done by international oil companies like Exxon Mobil Corp. Service companies work under contracts, while oil companies take a stake in the field being developed.

Halliburton's work with state oil companies includes a three-year contract to drill wells at Saudi Arabia's massive Khurais project and a three-year deal with Mexico awarded in January. Today, the company announced a contract for the offshore portion of Saudi Arabia's Manifa oil project.

Halliburton is the largest oilfield contractor in North America and the largest provider of so-called pressure pumping, which injects water or sand into rock formations to make gas flow more easily.

Increased competition cut into pricing for pressure pumping, or fracturing as it is sometimes called, in the past two quarters, according to Halliburton.

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