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How the Rig Count Could Impact Halliburton’s Earnings in Q2 2018

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Aug. 18 2020, Updated 10:27 a.m. ET

US rig count

In the week ended July 6, the US rig count was 1,052, up 6.0% compared to the week ended March 30. Growth in the US rig count can step up Halliburton’s (HAL) revenues and earnings growth in the second quarter.

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Revenue by geography

In the first quarter, Halliburton’s revenues from North America increased 58.0% YoY (year-over-year). During the same period, HAL’s revenues from international operations increased 8.5%. North America accounted for 61.0% of HAL’s first-quarter revenues.

Did upstream companies’ capex affect HAL’s margins?

In the past year, crude oil’s (USO) price has increased ~67.0%. Higher crude oil prices can lead to higher exploration and production activities by the upstream producers. Higher upstream capex typically leads to higher drilling and rig count, which moves revenues and operating margins for the oilfield equipment and services (or OFS) companies.

From the first quarter of 2017 to the first quarter, the upstream companies constituting the Energy Select Sector SPDR ETF (XLE) increased their capex by 8.0% in aggregate. XLE tracks an index of US energy companies in the S&P 500 Index.

From the first quarter of 2017 to the first quarter, HAL’s EBITDA margin (or EBITDA as a percentage of revenues) improved to 17.7% from ~13.7%. During the same period, the OFS industry’s average EBITDA margin decreased to 17.2% from 18.7%.

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