uploads///Upstream capex and EBITDA

How Upstream Operators’ Capex Cuts Could Affect Halliburton


Jun. 14 2017, Updated 10:36 a.m. ET

Halliburton’s EBITDA margin

As shown in the graph below, from 1Q16 to 1Q17, Halliburton’s (HAL) EBITDA margin (or EBITDA as a percentage of revenues) remained nearly unchanged at 13.7%. EBITDA margin is a measure of a company’s operating earnings. Halliburton makes up 0.16% of the iShares Dow Jones US ETF (IYY). From March 31, 2016, to March 31, 2017, IYY rose 15% versus a ~38% rise in HAL’s stock price during this period. EBITDA is earnings before depreciation and amortization.

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Upstream operators’ capex cut

Typically, lower upstream capex results in lower prices for oilfield services and equipment (or OFS) companies’ services and products. This reduces OFS companies’ operating revenues and margins. From 1Q16 to 1Q17, 19 of the largest US upstream companies have reduced capex by 21% in aggregate. HAL’s EBITDA margin, which improved to ~15% in 4Q16, deteriorated again in 1Q17.

EBITDA margin for HAL’s peers

Basic Energy Services’ (BAS) EBITDA margin was -2.4% in 1Q17. Schlumberger’s (SLB) EBITDA margin was 22% in 1Q17, while Patterson-UTI Energy’s (PTEN) EBITDA margin was ~23%.

Next, we’ll discuss Halliburton’s net debt.


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