Halliburton Says North American Fracking Demand Turns Corner

Jul 21, 2014 4:27 pm ET

(Updates with closing share price in last paragraph.)

July 21 (Bloomberg) -- Halliburton Co., the world’s largest provider of hydraulic fracturing services, said demand for fracking in North America has turned a corner and it’s adding crews this year as the industry burns through excess capacity that has kept prices low.

“On our last call, some of you may have been skeptical when I said I was beginning to feel the turn in North America,” Chief Executive Officer David Lesar said on a second-quarter earnings conference call today. “Based on our performance during the quarter, I believe this feeling was dead on target. Today, we are not feeling the turn, we are in the turn, and I feel even more excited than I was last quarter.”

Services companies like Halliburton in past years flooded the market in response to a surge in demand for fracking, a process in which water, sand and chemicals are shot underground to free oil and natural gas in shale and other hard-rock formations. That flood may now be coming closer to equilibrium - - after two years of a falling prices, they are expected to increase 2 percent this year in the U.S. and another 4 percent in 2015, according to a May 16 report by PacWest Consulting Partners LLC.

The comments from Houston-based Halliburton come after Baker Hughes Inc. said last week that while there was still 20 percent overcapacity in North American markets, the company is seeing more activity in onshore rigs, wells and horizontal drilling and the need for additional services.

Growing Appetite

“Our customers’ appetite for new technologies which can boost oil production from shale is growing,” Chairman and CEO Martin Craighead said on his company’s July 17 earnings conference call.

Schlumberger Ltd. failed to impress investors by reporting a 6 percent climb in its North American revenue from the first quarter.

“We are quite confident that we can improve margins going forward from this point,” CEO Paal Kibsgaard told analysts on July 18.

The average number of drilling rigs active on land rose 5.6 percent in the U.S. to 1,781 in the quarter as producers seek to boost output from shale formations, according to Baker Hughes.

“You’re seeing tightening in overall frack capacity,” said Luke Lemoine, an analyst at Capital One Southcoast in New Orleans who rates Halliburton the equivalent of a buy and doesn’t own the stock. “People are going to like this.”

Added Equipment

Halliburton boosted its operating profit margin in North America to 18.2 percent from 17.5 percent a year earlier and increased revenue in the region by 14 percent. Lemoine was expecting margins in the region of 17.8 percent.

New fracking equipment, which is measured in horsepower, is expected to roll out in the fourth quarter and throughout 2015, Lesar said today, declining to specify how much would be added.

Halliburton expects third-quarter operating profit margins in the region to be near 20 percent, the company said today in a statement. Second-quarter earnings were 32 percent above the results from the same period last year. Sales climbed 10 percent to $8.1 billion.

The company boosted its capital spending forecast for the year to $3.3 billion from $3 billion because of the increase in fracking equipment, Chief Operating Officer Jeff Miller said today on the call.

Halliburton, which has gained 55 percent in the past year, rose 0.1 percent to close at $71 in New York, after touching a record high. Baker Hughes climbed 1.4 percent to $74.33 and Schlumberger increased 0.6 percent to $113.04.