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Will the Rig Count Impact Halliburton’s Earnings in 4Q17?

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Nov. 20 2020, Updated 2:57 p.m. ET

US rig count

From September 29, 2017, until the week ending December 29, 2017, the US rig count fell 1% and finished at 929. The stagnant US rig count could have a negative impact on Halliburton’s (HAL) 3Q17 revenues and operating income growth in 4Q17. Crude oil prices have recovered 20% since September 29, 2017. However, the US rig count has decelerated. To learn more, read Iran, OPEC, Russia, and Crude Oil Inventories Impact Prices.

The US rig count rose ~41% in the past year until December 29, 2017. In September 2014, the US rig count reached its multiyear high. Since then, it has fallen 52% as of December 29, 2017.

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Revenue by geography

In 3Q17, Halliburton’s revenue share from North America rose to 58%—compared to 56% in 2Q17. During the same period, Halliburton’s total revenue rose 10%.

In 3Q17, Halliburton generated 42% of its revenue from international operations. From September 2017 to November 2017, the international rig count rose ~1%. Halliburton’s 4Q17 revenue and earnings could suffer if the US and international rig counts continue to fall or freeze.

Revenue comparison with peers

Oceaneering International’s (OII) 3Q17 revenue fell 8%—compared to 2Q17. Nabors Industries’ (NBR) revenue rose 5%, while Basic Energy Services’ (BAS) revenue rose 9% from 2Q17 to 3Q17. Halliburton accounts for 0.16% of the iShares Russell 3000 ETF (IWV). IWV rose 19% in the past year—compared to an 8% fall in Halliburton’s stock price during the same period.

Did upstream companies’ capex impact Halliburton’s margin?

From 3Q16 to 3Q17, 20 of the top upstream companies by market capitalization in the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) increased the capex 29% in aggregate. During the same period, Halliburton’s EBITDA margin improved to 19% from ~13%. Higher upstream capex usually results in higher prices for OFS (oilfield equipment and services) companies’ products and services, which can increase OFS companies’ revenue and operating margins.

Next, we’ll discuss what Halliburton’s implied volatility means for its stock price.

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