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Behind Halliburton’s Management Views for 3Q17

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How HAL’s management sees growth

David J. Lesar, Halliburton’s (HAL) chairman, has pointed to the rig count slowdown and energy exploration and production companies’ rationalized investments to explain what’s been happening with HAL.

In the 2Q17 earnings conference call, Lesar stated: “Today, rig count growth is showing signs of plateauing and customers are tapping the brakes. This demonstrates that individual companies are making rational decision in the best interest of their shareholders. This tapping of the brakes is happening all over the place in North America.”

Halliburton makes up 9.9% of the iShares US Oil Equipment & Services ETF (IEZ), which has fallen 16% in the past year, compared with the 10% fall in HAL’s stock price. The energy sector makes up 6.0% of the S&P 500 Index (SPX-INDEX), which has risen 14% in the past year.

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Halliburton’s international business

Halliburton’s management does not expect to see a quick recovery in the international rig count. In the 2Q17 conference call, Jeffrey Allen Miller, HAL’s CEO (chief executive officer) cited the following:

  • lengthy contracting cycle
  • need for sustained energy price recovery to overcome project duration risk
  • the time gap between the planning of FIDs (final investment decisions) and revenue generation
  • pricing depression, which shouldn’t offset any incremental improvements in international project activity

Halliburton’s 3Q17 outlook

In HAL’s C&P (Completion and Production) division, its North America revenue growth in 3Q17 is expected to outperform the average US land rig count growth. Below are the key details:

  • C&P division revenue should remain flat in international operations.
  • C&P operating margins should rise 2.25%–3.25%.

The D&E (drilling and evaluation) division revenues in North America in 3Q17 should meanwhile grow in line with the average rig count growth. Below are the key details:

  • D&E division revenue in the international market should decrease in 3Q17 over 2Q17.
  • D&E division operating margins should remain flat in 3Q17 over 2Q17.

In the next part, we’ll discuss Halliburton’s revenue and earnings.

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