Halliburton Co. (HAL) Chief Executive Dave Lesar said Monday that demand for oil field services in North America, such as hydraulic fracturing, continues to grow faster than companies like his can add equipment as producers rush to drill unconventional oil basins.
“Overall, growth in the demand for our service has outpaced capacity additions and we expect this imbalance to continue going forward,” Lesar said on a conference call to discuss second-quarter results.
Halliburton reported a profit of $739 million, or 80 cents a share, up from $480 million, or 53 cents a share, a year earlier. The latest period included a penny in restructuring-related costs. Revenue climbed 35% to $5.94 billion, which set a new company record.
Analysts polled by Thomson Reuters most recently forecast earnings of 74 cents a share on revenue of $5.71 billion.
Much of the quarter’s success is attributed to activity in North America, where high crude prices, producers’ healthy balance sheets and easy capital have fueled a rush to unlock unconventional onshore oil reserves, including shale formations.
Natural gas drilling in North America, though down 2% in the quarter, remained “relatively resilient, spurred by the increase demand for power generation due to the substitution of natural gas for coal and harsh summer temperatures in various regions,” Lesar said. Though Halliburton remains “a bit cautious” on natural gas drilling, the company’s move to reduce prices in order to keep customers drilling has been fruitful, he said.
Halliburton also cited an uptick in work in the U.S. Gulf, winning service contracts for eight of the 18 deepwater wells that have been permitted since U.S. regulators lifted a ban on such drilling in February. The ban was enacted in response to last year’s Deepwater Horizon explosion, which killed 11 workers and touched off the worst offshore oil spill in U.S. history. Halliburton provided cementing services for the well the Deepwater Horizon was drilling for BP PLC (BP, BP.LN).
Lesar cautioned, however, that the pace of new drilling permits has slowed and once the current backlog of work is complete, the Gulf of Mexico recovery could stall in the second half of the year.
Internationally, where recovery from recession has come more slowly for service companies than in North America, margins improved slightly.
“We are now seeing evidence that the international pricing is stabilizing,” Lesar said. “We believe that steady volume increases should be a precursor for overall international pricing to improve toward the end of the year.”
Delays in Iraq weighed on results, though Lesar said he expects profitability in the Middle Eastern country by the fourth quarter.
“We believe that Iraq will be one of the fastest-growing countries internationally in the coming years and that we will benefit significantly as a result of a first-mover strategy,” he said.
Lesar also said that while Halliburton is spending heavily in sub-Saharan Africa to establish operations in countries including Mozambique, Tanzania and Uganda, the efforts should “position us for many years of profitable operations going forward,” Lesar said.