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Analyzing Halliburton’s Growth Drivers

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What does Halliburton’s CEO think?

Halliburton’s (HAL) chairman and chief executive officer Dave Lesar sounded uncertain about the energy market’s recovery in the company’s fiscal 3Q15 press release. He stated that “there are a number of moving parts in the market today, and we are not going to try to call the exact shape of recovery, but we expect that the longer it takes, the sharper it will be.” Such uncertainty typically leads to lower upstream investments, which could negatively affect oilfield services and equipment providers such as Halliburton.

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Halliburton’s earnings growth by region

Halliburton’s earnings from its North American operations have declined more sharply than those from other regions. While the company’s operating earnings from its North American operations rose by 47% between fiscal 1Q13 and 4Q14, they fell by 99% between fiscal 3Q15 and fiscal 4Q14. Halliburton’s Middle Eastern and Asian operations grew by 64% between fiscal 1Q13 and fiscal 4Q14. Since fiscal 4Q14, they have fallen by only 3%.

In fiscal 3Q15, Halliburton’s operating income decreased by 46% to $1.5 billion from fiscal 3Q14. In comparison, Weatherford (WFT), HAL’s smaller peer, recorded $19 million in operating income in fiscal 3Q15. Halliburton makes up 2.2% of the Vanguard Energy ETF (VDE). VDE tracks an index made up of stocks of large, mid-size, and small US companies within the energy sector.

Halliburton’s growth drivers

Halliburton’s growth drivers include the following:

  • reduced upstream activity levels and lower pricing for most of Halliburton’s product service lines in North America
  • reduced logging services in the US onshore market
  • reduced cementing services activity in Mexico and Venezuela
  • increased project management activity in the Middle East and Asia, including higher drilling activity in Saudi Arabia
  • more fluid services in Brazil and higher software sales in Colombia

Next, we’ll see how Halliburton’s management’s commentary has changed in the past three quarters.

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