From Investor’s Business Daily

Oilfield services giant Halliburton (HAL) warned on third-quarter earnings at a conference Wednesday as customers face “budget exhaustion” while a transport backlog in the Permian Basin hits shale oil stocks.

At the Barclays conference in New York, Halliburton CEO Jeff Miller cited pipeline bottlenecks, a tight labor market and inflation that created a worse-than-expected downturn in the Permian.

These headwinds, plus delays on new Middle East contracts resulting in a slower-than-anticipated ramp up there, mean Q3 earnings per share will take a 8 to 10-cent hit, he said.

“This is a response to either budget exhaustion, in some cases, budget exhaustion along with take-away capacity,” Miller said. “Either reallocating capital somewhere else which creates disruption, or in some cases, pulling back and saying, ‘We’ll get back to you.'”

Halliburton had warned earlier this year that budget constraints among customers and the pipeline bottleneck would result in a downturn in activity, but Miller said Wednesday that those trends are bigger than expected.

The company is now seeing weakness in its pricing power across several basins due to a decrease in “customer urgency,” he added.

Halliburton shares tumbled 6% to 37.13 on the stock market today. Schlumberger (SLB) fell 1.45% to 61.02. Baker Hughes (BHGE) was down 2.1% to 31.66.

U.S. crude futures fell 1.7% to $68.72 a barrel.

Pipeline Problem Hits Shale Stocks

While oil production soared in the Permian, pipeline capacity hasn’t kept up, resulting in a glut of oil waiting to be transported out of the prolific basin.

In June, the International Energy Agency said it believes take-away capacity from the Permian fields will “become insufficient by midyear, with a deficit possibly reaching as much as 290,000 barrels a day during the first half of 2019.”

Despite the rally in crude prices, the pipeline crunch has forced producers to take lower prices for their oil than they would otherwise have fetched, hitting shale oil stocks.

As a result, shale producers said last month that they are shifting well completions from the Permian Basin to their other oil assets due to the lack of sufficient pipeline capacity.

Noble Energy (NBL) said it would reduce Permian completions during the second half of the year and instead focus on the DJ basin.

They are also more reluctant to boost spending for drilling. EOG Resources (EOG) said it will only increase capital spending “with discipline.”

Halliburton’s warning comes after Schlumberger warned on pipeline capacity at the conference on Tuesday.

“These challenges will likely have a dampening effect on production growth, wellhead prices and investment levels in the coming year,” CEO Paal Kibsgaard said.

But the issue will be resolved by the end of 2019.

But until then, Kibsgaard said that producers will wait to complete wells until oil prices rise and more pressure-pumping fleets come online.


Legal Notice