uploads///Upstream Capex and EBITDA

Will Upstream Operators’ Spending Affect HAL’s Margin in 2017?


Mar. 15 2017, Updated 10:37 a.m. ET

Upstream operators’ capex cut

In the past couple of years, many major US upstream and integrated companies have reduced their capital expenditures (capex) following crude oil’s sharp price fall. From 4Q15 to 4Q16, 18 of the most prominent names in this space slashed their capexes by a combined 28%.

Lower upstream capexes resulted in lower prices for oilfield equipment and services (or OFS) companies’ products and services, reducing their operating revenues and margins.

From 3Q16 to 4Q16, however, upstream companies’ capexes rose 19%, as crude oil prices began their recovery in 2016. Read Market Realist’s What’s Upstream: Capex Upgrades and Production Forecasts to know more about upstream companies’ capex plans. 

Higher capex on energy drilling and production could lead to improved margins for OFS companies going forward.

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Halliburton’s EBITDA margin

As shown in the graph above, Halliburton’s EBITDA (earnings before interest, tax, depreciation, and amortization) margin was relatively resilient as upstream companies slashed their budgets and renegotiated their contracts with OFS companies.

From 4Q15 to 4Q16, HAL’s EBITDA margin fell marginally to 15.1% from 17.2%, and the EBITDA margin in the OFS industry fell sharply. An EBITDA margin is a measure of a company’s operating earnings. Halliburton makes up 0.19% of the iShares Dow Jones US ETF (IYY). The energy sector makes up 6.1% of IYY.

Peers’ EBITDA margins

Tidewater’s (TDW) EBITDA margin was 1.2% in 4Q16. Schlumberger’s (SLB) EBITDA margin was 21%, and Patterson-UTI Energy’s (PTEN) EBITDA margin was ~18% in the quarter.

Next, we’ll discuss Halliburton’s indebtedness.


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