Halliburton Likely To Gain From Higher E&P Spend, Analyst Says

• Benchmark analyst Kurt Hallead initiated coverage on Halliburton Company HAL with a Buy rating and a price target of $50.


• Halliburton was in a solid position to benefit from increased Exploration & Production (E&P) spending on international and offshore projects in the intermediate term and continued to generate industry-leading returns in the U.S. frac market.


• Investment in Middle East oil and gas projects would likely hit new highs. 


• Offshore project FIDs would likely increase by 50% over the next five years.


• Though frac activity growth would likely moderate in 2023, the analyst expected to continue margin expansion as frac fleets rolled onto higher-priced leading-edge work.


• The analyst “buy” into the narrative that global E&P spending was in the early stages of a multi-year upcycle. 


• Specifically, the analyst assumed oil company investment would increase by 15% in 2023 to $447 billion and 10% in 2024 to $492 billion.


• The current energy cycle dynamics reminded the analyst of the 1995-2010 period when oil service stocks outperformed the S&P 500 in 11 of 16 years. 


• Upside earnings momentum and increased energy benchmark weightings should continue to pull a broader array of investors back into the oil service space during 2023, with recessionary concerns creating pent-up demand. 


• The Russian invasion of Ukraine had shifted the focus from energy transition to energy security. 


• Instead of blackballing oil and gas, governments scrambled to find alternatives to Russian supplies. 


• The U.S. oil production would possibly cease to be the swing provider of new barrels to the market. 


• As such, OPEC, specifically Saudi Arabia, would resume its role as the FED of the oil markets. 


• All indications suggested the new floor for benchmark crude oil prices is in the $70/bbl range.

 

HAL Price Action: Halliburton shares traded lower by 0.58% at $40.32 at publication Thursday.