Halliburton Posts Big Gain - Analyst Blog

Major oilfield services provider Halliburton Co. (HAL) reported better-than-anticipated fourth-quarter 2010 results. This was helped by the strength and sustainability of the all-important North American onshore activity levels (to which the company is heavily exposed through its market-share-leading pressure-pumping business).

Earnings per share, excluding special items, came in at 68 cents, beating the Zacks Consensus Estimate of 63 cents and were comfortably ahead of the year-ago adjusted profit of 28 cents.

Revenues of $5.2 billion were 40.0% greater than that achieved during the fourth quarter of 2009 and also surpassed the Zacks Consensus Estimate of $4.9 billion, as sales increased across the company's business units.

During the quarter, North America accounted for approximately 51% of Halliburton's total revenues and 61% of its operating income.

Segmental Performance

Completion & Production Segment: Business-segment-wise, Halliburton's Completion and Production segment revenues were up 12.4% sequentially and 64.2% year over year to $3.0 billion, reflecting sustained strength in North America and improved market conditions in Africa.

Segment operating income was $688 million, a 13.0% sequential increase and more than quadrupling from the year-earlier level. Operating income in North America increased significantly – $60 million sequentially and a whopping $473 million year over year – buoyed by strong results for production enhancement services and some pricing gains that more than offset typical weather-related seasonality in the Rockies.

Internationally, operating income was up $19 million from the third quarter of 2010 and $45 million from the fourth quarter 2009 levels. The growth over the preceding quarters was on account of higher activity levels in Norway and Iraq, better vessel utilization in Angola, along with increased completion tool sales in Algeria and Southeast Asia.  

Drilling & Evaluation Segment: Revenues from Halliburton's Drilling and Evaluation business were 8.2% above third quarter levels and improved by a much healthier 16.4% year over year to $2.2 billion, propelled by the typical year-end seasonality of higher demand for Landmark Graphics, a division of Halliburton specializing in E&P (exploration and production) software and consulting. Partially offsetting the positive factor were the effects of the activity declines in the Gulf of Mexico.

The segment's operating income rose 30.6% from the September quarter and 13.5% from the year-ago period to $354 million. Operating income in North America was $114 million during the quarter, flat from the previous quarter (adversely affected by the muted Gulf of Mexico activity levels) but up $56 million from the fourth quarter of 2009 (on strong U.S. land results).

International operating income increased $84 million sequentially on the back of higher activity in Iraq and increased direct sales in Asia. However, ex-U.S. profitability was down $14 million year over year, reflecting lower income from the Europe/Africa/CIS region.

Balance Sheet

Halliburton's capital expenditure in the fourth quarter was $657 million, bringing the full-year spending to $2.1 billion. As of December 31, 2010, the company had approximately $1.4 billion in cash and $3.8 billion in long-term debt, representing a debt-to-capitalization ratio of 26.9%.

Outlook

Halliburton management pointed out that fourth quarter profitability was driven by strong demand for its services in North America and improvement in activity in a number of international markets including Norway, West Africa, Iraq and Algeria.

The world's second-largest oilfield services company after Schlumberger Ltd. (SLB) believes that bullish near-term U.S. land drilling trends, where activity is being driven by horizontal drilling and liquids-rich plays, were able to make up for the decrease in activity in the Gulf of Mexico.

Going forward, Halliburton anticipates benefiting from pricing improvements in select North American basins, as operators continue to make the exploitation of unconventional resources the focus of their investment. At the same time, the company expects international activity to continue increasing.   

Even though Halliburton has a Zacks #2 Rank (short-term Buy rating) in the short run, we are Neutral on the shares in the longer term.

 
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