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The second quarter of 2015 was a grim period for the oilfield-services industry, and Halliburton Co. was no exception. The Houston-based company said its earnings plummeted by 93 percent because of slow demand caused by depressed drilling operations, particularly in the United States.
It’s hard to imagine any good aspect to this report, issued on July 20, but in fact by the end of the day’s trading, the company’s stock actually rose slightly by 1.8 percent to $40.70 because the earnings, low as they were, had beat analysts’ expectations.
Halliburton reported a profit of $54 million, down from $774 million in the second quarter of 2014, and revenue plunged 26 percent to $5.92 billion. In a survey by Thompson Reuters, energy analysts said they expected revenue to be slightly lower at $5.78 billion.
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The reason for the drop in profit was, of course, the continued low price of oil, which has cut into energy companies’ profits, particularly those using hydraulic fracturing, or fracking, to produce oil and gas from shale, which is a more expensive operation. And Halliburton is the world’s largest provider of fracking services.
It appears no one saw this situation coming, Jeff Tillery, an analyst at Tudor Pickering Holt & Co., told Bloomberg. “Underlying activity for the whole industry in the U.S. fell by more than we all thought a handful of months ago,” he said. “Oil price is going to be the barometer of what the future looks like.”
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That barometer may be for the entire industry, but it appears Halliburton may stand out in the way it handles its losses. Like its rivals, the company has cut its costs and laid off workers as its clients reduce exploration and drilling.
Customers are also seeking discounts from its service providers in an effort to maintain healthier profit margins. IHS Inc. reports that energy-service companies such as Halliburton are expected to reduce their prices in North America by up to 35 percent this year.
Halliburton, the second-largest oilfield services provider after Schlumberger Ltd., also appears to be buoyed by its effort to take over a smaller rival, Baker Hughes of Houston, an offer that’s now being reviewed by the U.S. Justice Department.
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The proposed merger faces close antitrust scrutiny because both companies do similar business in Asia and Europe as well as in the United States. To meet those concerns, Halliburton has put three drilling concerns that it owns up for sale and expects them to fetch $2 billion on the market despite the grim environment caused by the year-long decline in oil prices.
Halliburton CEO Dave Lesar issued a statement saying the company is “fully committed” to consummating the merger. Both companies say they expect the deal to close on Dec. 1.
“We are pleased with the progress of the proposed Baker Hughes acquisition, as evidenced by our recently announced timing agreement with the U.S. Department of Justice,” Lesar’s statement said. He added that Halliburton “recently received the initial round of bids on our previously announced divestitures, and are pleased with the prices and level of interest.”
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com