Shift to liquids helps keep Halliburton profit growing

By Emily Pickrell

Published 09:31 p.m., Monday, January 23, 2012

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  Halliburton CEO Dave Lesar calls the move into liquids "quite apparent." Photo: KARIM SAHIB / AFP

Halliburton's fourth-quarter earnings grew nearly 50 percent as it followed customers from natural gas into oil and gas liquids exploration in the U.S., company officials said Monday.

"The shift from natural gas to liquids-rich plays continues and was quite apparent in the fourth quarter," CEO Dave Lesar said during a conference call to discuss the financial results.

He noted that the U.S. oil rig count increased by 8 percent during the quarter, while the natural gas rig count dropped 2 percent.

Halliburton posted net income of $907 million for the quarter, up from $607 million in 2010. Fourth-quarter revenue rose 36.9 percent to $7.06 billion.

The oil field services company's revenue and earnings growth has tracked the exploration fever in North American shale plays.

Halliburton's full-year revenue increased to $24.8 billion in 2011, a 38 percent increase over $17.9 billion in 2010.

Annual net income was $2.8 billion in 2011, up from $1.8 billion in 2010.

Bill Herbert, an analyst with Simmons & Company International, said the services industry's hot spell may be cooling.

"We've had a two-year period of unbridled market expansion for Halliburton and its peers in North America," Herbert said, describing a growth spurt after the worst of the economic slump in 2008. "We are now transitioning into a new phrase, with a less-fervent growth."

Costs of moving equipment and personnel to liquid-rich fields are eating into margins as natural gas prices hover at less than $3 per million British thermal units.

Herbert also noted a maturing market for horizontal drilling - a process that along with hydraulic fracturing has been key to the surge in shale exploration and production.

"The market has been significantly undersupplied because of the growth of drilling and service intensity," said Herbert. "Now the market is becoming better-balanced." As a result, raw materials and labor costs have risen for Halliburton, but its ability to pass increases on to customers has lagged behind.

Tim Probert, president of strategy and corporate development, said Halliburton will push this year to lower the costs in its North America operations, as it shifts toward more profitable areas,

Halliburton shares closed Monday down 76 cents at $35.44 in trading on the New York Stock Exchange.

Some analysts say the stock is underpriced, the result of investor concern about a possible equipment glut relative to future drilling demand.

"Halliburton's stock has been weak on the basis that if the North American market softens at all, because of natural gas or if oil prices come down, that this is an area where we have had a lot of building of equipment," said James Crandell, managing director of oil services research for Dahlman Rose & Co., who gives the stock a "buy" rating. "We could see some erosion and in pricing and profitability."

emily.pickrell@chron.com