Halliburton 2nd-Qtr Profit Likely Rose on U.S., Canada Drilling

Halliburton 2nd-Qtr Profit Likely Rose on U.S., Canada Drilling

Halliburton Co., the world’s No. 2 oilfield-services company, likely will report an increase in second-quarter profit after customers spent more on drilling in North America.

The Houston-based company may say profit rose to 49 cents a share, according to the average estimate from 23 analysts in a Thomson Financial survey. That’s 29 percent higher than the 38 cents earned in the second quarter last year. Halliburton has said it will report results after the close of trading today or before U.S. stock exchanges open tomorrow.

The pace of natural-gas exploration in the U.S. and Canada jumped as companies tapped harder-to-reach fields. Halliburton dominates the market for high-pressure pumping services designed to increase oil and gas output. Demand for Halliburton’s services is seen in the number of drilling rigs employed, analysts said.

“Canada was strong, and the U.S. was strong in terms of rig count,” said Jason Putman, an analyst who helps manage $56 billion at Victory Capital Management in Cleveland, including 8 million shares of Halliburton, its largest energy holding. “If the rig count is strong and companies are drilling wells, they’re going to be using the pressure-pumping equipment.”

Benchmark U.S. gas prices averaged $6.51 per million British thermal units in the second quarter, a drop of 17 percent from the first quarter and 6.3 percent from the 2005 second quarter. They were still three times the average price in the 1990s, and the number of gas drilling rigs operating in the U.S. and Canada was 16 percent higher than a year earlier.

Halliburton shares are up 10 percent this year, lagging behind the 16 percent average gain for the oilfield equipment and service companies in the Standard & Poor’s S&P 500 Index. The oil equipment and service providers are the third-best performing group in the S&P 500 this year.

KBR in Iraq

While almost 90 percent of Halliburton’s 2005 profit came from oilfield services, revenue was about evenly split between the oilfield division and KBR, Halliburton’s engineering, construction and government contracting subsidiary. KBR is the biggest U.S. military contractor in Iraq.

Halliburton plans to divest KBR through a public offering, selling almost 20 percent initially and possibly disposing of the rest over time. The company has not yet received approval from the U.S. Securities and Exchange Commission for the KBR share sale and hasn’t announced a schedule for the transaction.

Halliburton was criticized by Democrats in the U.S. Congress, who claim KBR was favored in the award of its Iraq contracts and allowed to overcharge for goods and services because Vice President Dick Cheney, a Republican, was Halliburton’s chief executive officer from 1995 to 2000.

Complaints that Halliburton has overcharged the government or received special treatment are completely unfounded, according to company spokeswoman Melissa Norcross.

Many billing issues raised by government auditors have since been resolved, “which validates that KBR’s position in these matters is substantially correct,” she said in an e-mailed statement. “It’s the auditors’ job to ask questions, and it’s our job to provide answers, which we have done.”


Halliburton Chief Financial Officer Cris Gaut told investors last month that earnings should double in three years as revenue rises 26 percent annually. The company will spend as much as $2 billion a year on niche acquisitions and expand overseas to boost sales and profit, he said.

In the second quarter of last year, Halliburton received 46 percent of revenue from North America. Investors want growth elsewhere in the world to reduce the company’s reliance on the North American gas market.

Global oil prices moved in the opposite direction of U.S. gas prices in the quarter. Benchmark New York crude futures were 33 percent higher in the second quarter on average compared with a year earlier.

“The eastern hemisphere should continue to grow for the next two to three years,” said Banc of America Securities LLC analyst James Wicklund in Houston, who rates Halliburton shares a “buy” and doesn’t own any. “You want to see how that’s progressing.”

Rig Utilization

Oil service companies are adding new equipment that could bring too much supply to the pressure-pumping market, Putman said. Declining gas prices, with U.S. inventories of the fuel 27 percent higher than the five-year average for this time of year, are another concern, he said.

“You could even see most of the service companies beating estimates, but if they say they see utilization rates slowing, people laying down rigs, it won’t matter,” he said. “That’s what I’m a little more fearful of.”

In an interview last month, Halliburton Chief Executive David Lesar played down concerns that a drop in gas prices might slow the pace of drilling in the U.S. and Canada. He pointed to a new trend among drillers requiring oil and gas producers to sign multi-year contracts that leave them little choice but to drill.

“It’s a use-or-pay concept,” Lesar, 53, said in the June 8 interview. “If they kick a rig back or put it down, they’re still in fact paying a dayrate on it, and so why not drill through this particular environment?”

Not everyone finds comfort in the trend.

“Fifty percent of the U.S. rigs are on contracts of from one to three years,” Wicklund said. “That means 50 percent aren’t.”

New York-based Schlumberger Ltd. is the largest oilfield- services company by market capitalization, and Baker Hughes Inc. of Houston is the third-largest. Schlumberger is scheduled to release earnings tomorrow.

(Halliburton plans a conference call to discuss first- quarter results tomorrow at 11 a.m. New York time. The call can be accessed at http://www.halliburton.com or (1) (913) 981-4901.)

Source: www.bloomberg.com

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