Current HAL Stock Info

Market is 1 million to 1.5 million horsepower undersupplied

Halliburton Company (ticker: HAL) reported an income of $46 million, or $0.05 per diluted share for the first quarter of 2018. This is an improvement over Q1 2017’s net loss of $32 million, or $(0.04) share.

“We achieved total company revenue of $5.7 billion, representing a 34% increase compared to the first quarter of 2017. Adjusted operating income was $619 million, primarily driven by robust market conditions in North America,” President and CEO Jeff Miller said.

Venezuela breakdown

Halliburton said that as a result of recent changes in the foreign currency exchange system in Venezuela and continued devaluation of the local currency, combined with U.S. sanctions and ongoing political and economic challenges, the company wrote down all of its remaining investment in the country during the first quarter of 2018.

This write-down resulted in a charge of $312 million, net of tax, consisting of $151 million of receivables, $53 million of fixed assets, $48 million of inventory, $13 million of other assets and liabilities and $47 million of accrued taxes.

Adjusted income from continuing operations (excluding impairments and charges) for the first quarter of 2018 was $358 million, or $0.41 per diluted share.

Segment revenues

  • Completion and production revenue in the first quarter of 2018 was $3.8 billion
    • Halliburton experienced delays in sand deliveries due to rail interruptions during the quarter, impacting the company’s completions and production division
  • Drilling and evaluation revenue in the first quarter of 2018 was $1.9 billion

North America revenue in the first quarter of 2018 was $3.5 billion – a 58% increase year-over-year. According to Halliburton, this improvement was driven by increased activity throughout the United States land sector in the majority of the company’s product service lines, primarily pressure pumping, as well as higher drilling and artificial lift activity.

Globally, international revenue in the first quarter of 2018 was $2.2 billion, a 9% increase year-over-year, primarily due to increased drilling activity and pressure pumping services in the Eastern Hemisphere, as well as pressure pumping activity in Argentina.

Revenue in the first quarter of 2018 was $457 million for Latin America – a 1% decrease year-over-year. Europe/Africa/CIS revenue was $716 million, increasing 19% over last year’s Q1 due to more drilling activity and completion services in the North Sea.

Another region also saw a modest increase in revenue, according to Halliburton, the company’s Middle East/Asia operations recorded revenue of $1.1 billion, a 7% increase year-over-year. Increased drilling and stimulation in the Middle East and increased drilling in Indonesia contributed to this increase.

Q&A conference call excerpts: the market is undersupplied by at least 1 million to 1.5 million horsepower

Q: I want to dig in a little more on the pressure pumping market: How much is demand running above supply these days, how long this could stay tight and how is that going to factor in into pricing for Halliburton?

President and CEO Jeffrey Allen Miller: Looking at overall supply and demand, it looks like the market’s undersupplied probably 1 million – 1.5 million horsepower today. And I expect that it stays that way certainly for this year and likely beyond. And a lot of that’s because of the attrition that I talk about that is very real, and we look at horsepower announcements versus actual fleet adds.

And all that does is – and the fact that about half the horsepower announced is going back into existing fleets tells me that that market stays tight. And so for that reason, from our perspective anyway, we see solid pricing. We push it every day. We’re not going to get into the strategy around that, how we do that but certainly see pricing to cover inflation out there as well as pushing on the net pricing side of that as well.

Q: Can you give us your thoughts on how much horsepower incrementally do you think is coming into the market?

Miller: When we look at headline horsepower in the marketplace, we think it’s probably 18 million horsepower, somewhere in that range. When we look at what’s been announced in terms of new build and reactivations, that comes to maybe 4.5 million horsepower. Of that, we expect roughly half of that is going to get plowed back into existing fleets.

At Halliburton, we’ve maintained our fleets at 36,000 horsepower on average which tells me that we’re getting differential performance around that equipment. And so that clearly, in my view, with the kind of rig count that we have today and the outlook for growth this year, keeps that tight. And so I think that’s how we see it unfolding for the balance of the year.

Q: A question on the sand side… you talked about increasing use of local sand… Can you just give us a sense of how you see the magnitude of that shift?

Miller: Well, that’s a moving target as we speak. If we go back six months ago, it was zero. And I suspect as we get into some time next year, there’s, for the market anyway, there’s a path to oversupply that market from the Permian. And that’s sort of the projects that we see or at least are in process of getting built.

So it’s probably never 100%, but it could be a substantial portion of the sand demand in the Permian will come from mines in the Permian. It’s a dynamic we’re starting to see in other basins as well. What it ultimately does is it serves to relieve pressure on rail, and it certainly provides for more availability at Northern White to the markets that will probably continue to demand that.

Q: Do you expect the truck dynamic to be less of an intensive challenge than the rails as you move into using this local sand?

Miller: Our logistics investment and our logistics team is terrific, and so we’ll work through whatever those challenges are as they appear. But I think some of the key building blocks are in place, particularly around how we move sand on a local basis.

I think the box technology gives us a lot of options around how to move sand and ways to be more effective with that. We’ve got a lot of different ideas that I won’t lay out on this call for all the reasons you might imagine.

But I’m really excited about that shift, and I don’t think – I think Northern White gets more focused on other parts of the country, which again, we’ve got terrific logistics infrastructure to deal with that. And I think it actually creates new opportunities. Will there be congestion? Yeah, there probably will. But at the same time, I can see a path to how we manage that, that’s exciting.

Q: How are things progressing in context of contracts for E&Ps relating to the local sand? How much adoption have you started to see, and how much do you have already kind of committed to go to customers for local sand going into late 2018 and 2019?

Miller: We’re going to participate in that market. I think that our value proposition – I mean, when we view that market, things that bring the structural costs down are good for our business, all of our business, including our customers, including Halliburton.

And so we look at that as an opportunity to reduce the cost of this, which actually allows our customers to do more work and do more of the work that I think is differential for Halliburton, which is how to design and place fracs in a way that makes better well and does it more efficiently so real excited about that.

It’s going to probably be more adopted as it becomes more available, and clearly, everything would indicate that there’ll be a lot of availability of that sand as we work through the balance of 2018, certainly into 2019.

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