Tickers in this Article: HAL, SLB, WFT, BHI
Halliburton (NYSE:HAL) launched the second quarter earnings season for the oil services sector with an outstanding report highlighting the strength of the North American drilling cycle.

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Here are some takeaways from Halliburton earnings and its conference call that investors might have overlooked.

Gulf of Mexico Slowdown?
Halliburton has become more pessimistic on activity in the Gulf of Mexico and indicated that business here might slow down in the second half of 2011. During the first quarter conference call held April 2011, Halliburton disclosed that the company was awarded 30% to 40% of the drilling and completion services work on the first ten wells drilled in the Gulf of Mexico after the moratorium was lifted.

Halliburton has now performed the majority of the work on these first wells and, given the drop in permitting activity by the government, the company is concerned about a slow down here.

Uncompleted Wells
The number of uncompleted oil and natural gas wells in North America continues to increase and Halliburton management now estimates that there are more than 3,500 wells that have been either drilled and not completed, or are completed and are now awaiting pipeline. The company expects this inventory to continue to increase for the rest of 2011.

During 2011, Halliburton has consistently increased its estimate of the amount of uncompleted oil and natural gas wells in North America. The company estimated 3,100 uncompleted wells at the end of 2010 and 3,500 at the end of the first quarter of 2011.

This inventory of uncompleted wells is good news for Halliburton and other providers of these services as even in the unlikely case that the rig count should flatten out or drop, there will be a large backlog of wells to work on.

International Inflection
Halliburton was also more optimistic on the recovery in international markets, an area that many investors are watching closely. In April 2011, the company indicated that although volumes were starting to improve in many overseas markets, pricing was so competitive that it would "hamper any significant margin improvement."

Halliburton acknowledged a challenging international pricing environment during the second quarter call, but indicated that volume improvement has now reached the point where excess capacity will be absorbed. Halliburton believes that this will lead to gradual pricing improvement and expansion in international margins in 2011 and 2012.

Weatherford International (NYSE:WFT), Schlumberger (NYSE:SLB) and Baker Hughes (NYSE:BHI) also have significant international operations and are due to report earnings shortly. Investors should scrutinize management commentary during these conference calls to get more clues on the oil services cycle.

Schlumberger will hold its call on the morning of July 22, while Baker Hughes is expected to hold its call before the market opens on July 25. Weatherford International will be the last of the large cap oil services companies to report and will discuss results with investors on the morning of July 26.

The Bottom Line
While Halliburton is optimistic on the North American drilling cycle and an eventual improvement in international margins, investors might want to look for confirmation from other large oil service companies involved with international markets. (Over time, intelligent and disciplined risk-seeking behavior can produce substantially above-average returns. See How To Construct A High-Risk Portfolio.)

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