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Halliburton Q1 2012 Earnings Review
Halliburton (NYSE:HAL) reported strong financial results for the first quarter of 2012, as the company continues to manage the uncertain business environment in North America created by the collapse in natural gas prices.
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First Quarter of 2012
Halliburton reported GAAP net income of $627 million in the first quarter of 2012, or 68 cents per diluted share. These results include the impact of an after tax charge of $191 million, or 20 cents per diluted share, recorded by the company for liability related to the Macondo oil spill.
Revenue came in at $6.9 billion for the most recent quarter, compared to $5.3 billion in the first quarter of 2011. On a sequential basis, revenues declined from $7.06 billion reported in the final quarter of 2011.
Natural Gas Dislocation
Halliburton has seen margin erosion in its North American operations, as the industry shift from natural gas directed activity to crude oil and wet gas development, disrupted supply chain operations for Halliburton. The company also experienced pricing erosion due to excess oil services capacity in select basins and cost inflation on raw materials.
Halliburton expects these issues to continue and estimates a 200 to 250 basis point impact on North American margins in the second quarter of 2012.
SEE: Oil And Gas Industry Primer
Pricing
The management of Halliburton held a conference call and discussed the company's outlook on pricing trends for various oil services. The company said that pricing for hydraulic fracturing services would become "more challenging" as contracts rollover and are renegotiated by customers.
Halliburton said that this pricing pressure varied by basin, with natural gas plays undergoing the most pressure, followed by oil and liquids basins located in close proximity to these gassy areas. The company mentioned the Eagle Ford Shale as one of these oil and liquids basins, due to its location near the Haynesville Shale.
The weakening conditions for hydraulic fracturing pricing is apparently not spreading, as Halliburton reported stable pricing in all other product and service lines in North America. Halliburton is optimistic that the pricing pressure will alleviate during 2012 and expects North American margins to bottom in the low 20% range.
Earnings Warnings
Other oil services companies have been impacted by these forces as well. In March 2012, Baker Hughes (NYSE:BHI) lowered the company's earnings guidance and said that operating profit before tax for the first quarter of 2012 would decline sequentially from the previous quarter. The company reports before the market opens on April 24 and will give additional commentary on recent conditions.
SEE: Surprising Earnings Results
The Bottom Line
Investors can confirm the pricing trends reported by Halliburton through a review of first quarter earnings reports by other large oil services companies with significant operations in North America. Schlumberger (NYSE:SLB) is the largest public oil services company and reports financial results before the market opens on April 20. Weatherford International (NYSE:WFT) also has a large North American presence and reports earnings before the market opens on April 24.
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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.
First Quarter of 2012
Halliburton reported GAAP net income of $627 million in the first quarter of 2012, or 68 cents per diluted share. These results include the impact of an after tax charge of $191 million, or 20 cents per diluted share, recorded by the company for liability related to the Macondo oil spill.
Revenue came in at $6.9 billion for the most recent quarter, compared to $5.3 billion in the first quarter of 2011. On a sequential basis, revenues declined from $7.06 billion reported in the final quarter of 2011.
Natural Gas Dislocation
Halliburton has seen margin erosion in its North American operations, as the industry shift from natural gas directed activity to crude oil and wet gas development, disrupted supply chain operations for Halliburton. The company also experienced pricing erosion due to excess oil services capacity in select basins and cost inflation on raw materials.
Halliburton expects these issues to continue and estimates a 200 to 250 basis point impact on North American margins in the second quarter of 2012.
SEE: Oil And Gas Industry Primer
Pricing
The management of Halliburton held a conference call and discussed the company's outlook on pricing trends for various oil services. The company said that pricing for hydraulic fracturing services would become "more challenging" as contracts rollover and are renegotiated by customers.
The weakening conditions for hydraulic fracturing pricing is apparently not spreading, as Halliburton reported stable pricing in all other product and service lines in North America. Halliburton is optimistic that the pricing pressure will alleviate during 2012 and expects North American margins to bottom in the low 20% range.
Earnings Warnings
Other oil services companies have been impacted by these forces as well. In March 2012, Baker Hughes (NYSE:BHI) lowered the company's earnings guidance and said that operating profit before tax for the first quarter of 2012 would decline sequentially from the previous quarter. The company reports before the market opens on April 24 and will give additional commentary on recent conditions.
SEE: Surprising Earnings Results
The Bottom Line
Investors can confirm the pricing trends reported by Halliburton through a review of first quarter earnings reports by other large oil services companies with significant operations in North America. Schlumberger (NYSE:SLB) is the largest public oil services company and reports financial results before the market opens on April 20. Weatherford International (NYSE:WFT) also has a large North American presence and reports earnings before the market opens on April 24.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.
by
Eric Fox
Eric J. Fox, CFA, is a freelance financial writer and has previous experience working in the asset management industry as an equity analyst and portfolio manager on the buy side. His favorite area to write on is the energy sector and he keeps current on the industry by reading Haynesville Shale, Permian Oil and Gas and various other blogs.
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