Halliburton Targets Stability in Notoriously Volatile U.S. Market to Deliver Profitable Growth

Analyst

Katherine Olexa

Revenue segments as reported by the company.

Services

Product sales

Revenue Segments

Gross Profit, Operating Income, and Net Income as a percentage of Revenue

Gross Margin

Operating Margin

Profit Margin

Margins

An operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX.

Impairments and other charges

General and administrative

SAP S4 upgrade expense

Operating Expenses

Year over year growth in Revenue and Operating Expenses.

Revenue Y/Y

OpEx Y/Y

Growth

Shares outstanding refer to a company's stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company's officers and insiders.

Outstanding Shares

Market Cap

Also known as Price/Sales Ratio. Calculated using Average market cap for the quarter / Annualized quarterly revenue.

Revenue Multiple

Halliburton is one of the three largest oilfield service firms in the world, and it’s the largest pressure pumper in North America. The firm is renowned for its exceptional record of innovation, consistently developing novel ways to maximize value for its customers. 

We see challenges ahead for Halliburton, especially as the North American shale market grows increasingly competitive and profitability proves more difficult to maintain. Technological advances over the last several years have disseminated rather quickly among pressure pumpers, which reduces any one firm’s ability to maintain a competitive edge. In our view, Halliburton has risen to the occasion, as evidenced by its development of simultaneous fracturing, a method introduced by the firm in 2016 that’s essentially doubled the speed of well completions. We also think the industry’s push toward net-zero emissions presents opportunities in this space, and high demand for dual-fuel and electric fleets will allow Halliburton (as well as other providers of this next generation equipment) to command pricing premiums and longer-term contracts for the next several years. 

Regardless, the oil and gas production space is transforming in real time, as traditional oil and gas companies set their sights on broader energy applications in anticipation of a global shift away from a reliance on oil. Halliburton has astutely resolved to focus its attentions inward, maximizing profitability where it can and expanding to address international markets. We’re also encouraged by its emphasis on developing digital solutions for its clients, which we think represents the next frontier in production efficiency with the added benefit of its asset-light nature that will allow Halliburton to maximize value generation over time.

Business Strategy & Outlook

We award Halliburton a narrow moat. The firm maintains a competitive advantage thanks to its impressive intangible assets, composed of its robust patent portfolio and its considerable engineering expertise and experience, all of which contribute to the firm’s strong reputation among well operators, which facilitates contract wins over time. We also observe a cost advantage through economies of scale and scope. Halliburton’s formidable size and broad end-market exposure allow the firm to maximize the value-add from R&D investments by applying insights across service and product lines. The firm’s returns on invested capital have averaged 12% over the past 10 years, and we expect its ROIC will improve over the next five, reaching 23% by 2027. 

The completion and production segment represents about 57% of Halliburton’s total revenue and largely provides services for hydraulic fracturing, cementing, and artificial lift. It’s a historically strong performer—segment ROICs have averaged in the mid- to high teens over the past five years. Despite industrywide headwinds, including downward pricing pressure and a constant race for innovation, we’re optimistic Halliburton will continue to find ways to deliver value through its operational know-how and continued technological prowess. 

The vast majority of this segment’s revenue relies on pressure pumping services (nearly three quarters, according to data from Spears & Associates), and Halliburton has long held the dominant market share in this industry. On average, Halliburton handles roughly one fourth of all active frac spreads in North America. The firm has the most exposure to the Permian Basin, which represents roughly one third of its active frac spread capacity. Halliburton, Liberty Energy, and ProPetro together control over half the Permian pressure pumping market, and the remaining half is highly fragmented. The relative market concentration in and of itself affords Halliburton a degree of pricing power relative to other, more fragmented markets, where rampant product commoditization puts significant downward pricing pressure on oilfield service firms. The Permian Basin also features geological characteristics that make it particularly suitable to simultaneous fracturing, a completions method introduced by Halliburton in 2016. Rystad indicates that in 2020, simultaneous-fracturing completions were 60% faster than the more widely implemented zipper fracking method, resulting in 5%-7% cost reductions for well operators. Halliburton can therefore charge a slight pricing premium for its services, because the cost savings make well operators—which are highly cost-sensitive—more amenable to a higher service charge.

The evident efficiency gains from simultaneous fracturing have spurred enthusiastic adoption of the method, representing 8% of total well completions at the end of 2020, compared with just 1% in 2018. That being said, simultaneous fracturing doesn’t make economic sense everywhere. It requires about 50% more equipment on a well pad, and not all basins feature sufficient pad density to support the requisite equipment intensity. The majority of simultaneous-fracturing operations therefore take place in the Permian, where Halliburton again maintains particularly strong market share. 

The Haynesville shale play is another valuable end market for Halliburton. It represents roughly 15% of Halliburton’s total active frac spread capacity, and the firm handles roughly half of the fracking operations in the region. The Haynesville shale play is significantly more concentrated than other markets: Rystad data indicates just five pressure pumpers maintain operations in the region. It also features more complex wells, making it the most frack-intensive play in the U.S. These two factors together create stickier customer relationships and convey more pricing power to service providers relative to other regions in North America. Haynesville is also in much closer proximity to frac sand mines than other regions. Management indicates that transportation expenses account for more than 50% of frac sand costs, so any reductions in distance traveled can garner cost savings (and in such a highly cost-competitive industry, any savings are impactful). We expect this cost advantage will prove particularly valuable in the near term as strong demand for frac sand pushes prices ever higher. Increasing simultaneous-fracturing adoption will exacerbate matters, since its higher equipment requirements also apply to frac sand. Prices will remain high until frac sand providers can introduce adequate capacity to restore the supply/demand balance (around 2023 year-end at the earliest, according to Rystad). 

The advent of simultaneous fracturing solidifies Halliburton’s reputation as an innovator in oilfield services and strengthens its value proposition toward well operators that consistently seek to maximize operational efficiency. Oilfield service providers are in a constant race toward the technological leading edge in order to drive efficiency gains that win contracts with well operators. The result has been rapid dissemination of technological advancements that have significantly reduced well costs over time. It appeared for a while that the most impactful developments had already been realized, but Halliburton’s solutions indicate there may be more runway for innovation than previously assumed. We expect competitors will implement simultaneous-fracturing solutions of their own, which may erode some of Halliburton’s competitive advantage over time, but several other industry developments present opportunities for the firm to protect its position as the lead innovator in pressure pumping and beyond. 

Next-generation equipment such as electric frac spreads, or e-fracs, and dual-fuel frac spreads represent the current technological leading edge in pressure pumping, and Halliburton is positioned to take significant market share. Next-generation frac fleets are in particularly high demand by well operators seeking to minimize wellsite emissions wherever possible. By our estimate, next-generation fleets can confer cost savings to well operators in excess of $100,000 per month, and their potential cost-effectiveness only increases when diesel or gas prices are high. These savings are even after accounting for the hefty price premiums these next-generation fleets can command compared with traditional diesel fleets—10%-15% for dual-fuel fleets, and 20% for e-fracs, according to Rystad. E-fracs and dual-fuel fleets currently operate at maximum capacity, which we expect will persist for the next few years. Several service firms intend to introduce additional capacity over the next few years, but it will take quite a bit of time and investment before available capacity can erode price premiums, which will protect Halliburton’s moat for some time. Halliburton is investing in infrastructure development so more well operations can support e-fleets, however, which will support continued industry growth over time. Service firms aren’t rushing to launch large fleets of these at once; despite the numerous advantages provided by these next-generation fleets, the frac equipment market remains oversupplied. Furthermore, the service industry has learned from the overexuberant investment in the 2010s that caused the rampant rig overcapacity today. Service firms have by and large indicated they won’t build new fleets without first receiving a contract from a well operator (which also tends to be longer term to ensure adequate return on investment). Dual-fuel conversions can cost around $10 million, while e-frac conversions can be as high as $60 million per fleet. In our view, the high capital investment required for upgrades may create barriers to entry for smaller players. It's worth noting that Halliburton’s largest competitors like Liberty Energy and ProFrac are actively upgrading their fleets, but we think the expense associated with upgrades plus the time required for fleet conversions will keep industry conversions slow enough to protect pricing premiums for next-generation equipment over the next few years. 

The other portion of Halliburton’s business falls into the drilling and evaluation segment, which has averaged 16% ROICs over the past five years. We don’t see as much of a competitive advantage from technological prowess in this segment, as rampant product commoditization leaves little room for technological differentiation, leaving Halliburton and peers to compete almost entirely on price. Furthermore, Halliburton often holds a distant second, or even third, place to Schlumberger and Baker Hughes in nearly every product line. Nevertheless, the portfolio diversification contributed by this segment allows Halliburton to leverage its innovations across the company, maximizing the return on its R&D dollars and strengthening its overall cost advantage. 

We see evidence of this in the drilling and completion fluids product line, which features several products used in pressure pumping, where Halliburton is known for driving innovation. It’s this segment’s strongest product line by far, generally representing about 30% of total segment revenue. Schlumberger and Halliburton have enjoyed a relative duopoly in this market since at least 2008, each controlling roughly 25% of the market, and share falls off dramatically thereafter (the third-largest player’s share is below 10%, according to data from Spears & Associates). 

The drilling and evaluation segment is much more globally diversified, as well, which can at times mitigate adverse impacts from cyclicality, which is typical of the oil and gas market. The North American oil and gas market tends to be highly volatile, as well operators are typically very quick to adjust operations in response to changes in oil and gas prices. International (excluding U.S.) markets, on the other hand, still cycle with oil and gas prices, but tend to be significantly less sensitive to price cycles. The larger proportion of national oil companies entails significantly more government-contracted projects in international markets, which tend to adopt a longer-term view. The firm no longer breaks out segment revenue by geography, but we expect roughly two thirds of drilling and evaluation revenue comes from international markets, compared with roughly one third in the completion and production segment. The impact is noticeable—following the significant activity declines in 2020, completion and production revenue fell by one half compared with 2019, while drilling and evaluation revenue fell by less than a quarter. Halliburton still maintained excess returns in 2020, but if its drilling and evaluation segment held similar geographic exposures to the completion and production segment, we estimate ROICs could have dropped below 1%. 

Overall, Halliburton maintains a strong business that’s resilient during downturns and continues to contribute meaningful innovations in an industry where technological differentiation is difficult to attain, let alone maintain. We expect the firm’s strong market share in several core competencies coupled with its reputation for continually adding value for its customers will ensure the firm generates excess returns for at least the next 10 years.

Narrow

Economic Moat

Halliburton

Halliburton Co. engages in the provision of services and products to the energy industry related to the exploration, development and production of oil and natural gas. It operates through the following segments: Completion and Production and Drilling and Evaluation. The Completion and Production segment delivers cementing, stimulation, intervention, pressure control, specialty chemicals, artificial lift and completion services. The Drilling and Evaluation segment provides field and reservoir modeling, drilling, evaluation and wellbore placement solutions that enable customers to model, measure and optimize their well construction activities. The company was founded by Erle P. Halliburton in 1919 and is headquartered in Houston, TX.

Earnings data Q1 2024

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

Halliburton Co. engages in the provision of services and products to the energy industry related to the exploration, development, and production of oil and natural gas. It operates through the Completion and Production, and Drilling and Evaluation segments. The Completion and Production segment delivers cementing, stimulation, intervention, pressure control, specialty chemicals, artificial lift, and completion services. The Drilling and Evaluation segment provides field and reservoir modeling, drilling, evaluation, and wellbore placement solutions that enable customers to model, measure, and optimize their well construction activities. The company was founded by Erle P. Halliburton in 1919 and is headquartered in Houston, TX.

Halliburton (HAL) reported earnings 30 days ago. What's next for the stock?

Halliburton (HAL) Down 9.1% Since Last Earnings Report: Can It Rebound?

Schlumberger

Suncor Energy

Tidewater

Valaris Ltd

Whiting Petroleum

Exxon Mobil

The combination of underinvestment in new oil wells and rising demand underscores what might be a long period of high prices for energy commodities. Meanwhile, many oil and gas stocks are still trading at low valuations to expected earnings despite a sector-wide rally stretching back to the end of 2020.

Deep Dive: 8 oil stocks that are still bargains for long-term investors

Hess

Marathon Oil

Occidental Petroleum

Valero Energy

Energy Select Sector SPDR Fund

Many investors, including Warren Buffett, are betting that higher crude oil prices are here to stay for a while. It's a good wager, thanks to the spike in oil prices from about $75 a barrel at the end of last year to above $100 now. Nearly all of the top performers in the S&P 500 this year are energy stocks.

Oil stocks are the new FAANGs

A top proxy advisor recommended Halliburton's shareholders should vote against its executive compensation plan, the oilfield services provider said on Monday in a filing.

Proxy advisor recommends voting against Halliburton's pay plan - company

As oil prices hover around $100, investors naturally seek to deploy capital to oil stocks, as Warren Buffett did. These intelligent investors must be asking which oil stocks are poised to perform the best in the near term amidst rising inflation.

Best Oil Stocks For Q2 2022: Halliburton And Schlumberger

Halliburton Co. HAL, -3.00% said Monday that it named Eric Carre, a 31-year veteran of the oil services company, as its chief financial officer, effective immediately. Carre assumes the rose from Lance Leffler, who will take the role of senior vice president of Halliburton's Middle East North Africa (MENA) region.

Halliburton names Eric Carre as its CFO

HOUSTON--(BUSINESS WIRE)--Halliburton Company (NYSE: HAL) today announced senior executive leadership changes as part of its robust succession management process. Effective immediately, Lance Loeffler, executive vice president and chief financial officer (CFO) will assume the role of senior vice president of the Company's Middle East North Africa (MENA) region. “Lance has done a fantastic job serving as Halliburton CFO and has played an instrumental role in our Company's success and financial g

Halliburton Announces Executive Leadership Changes

Chevron

Oil stocks are sliding after China implemented Covid-19 lockdowns in parts of its capital city of Beijing. The post Oil Stocks Alert: Why Are XOM, CVX, MRO, OXY Stocks Down Today?

Oil Stocks Alert: Why Are XOM, CVX, MRO, OXY Stocks Down Today?

The near-term prospects look excellent for Halliburton.

Up 80% in 2022, Is This Soaring Energy Stock Still a Buy?

The management team at Halliburton Company recently announced favorable results covering the first quarter of the company's 2022 fiscal year. The picture moving forward is appealing right now, but if the recovery does not last, then shares are likely fairly valued.

Halliburton: A Solid Quarter Suggests Its Recovery Is In Full Swing

U.S. oilfield services firm Halliburton Co on Friday warned it may face Russian government seizure of its $340 million in assets in the country and a future charge to earnings over its withdrawal.

U.S. oilfield services firm Halliburton warns of risk to Russian assets

"I think you've got to use this rare opportunity to buy a best-of-breed stock on weakness," the "Mad Money" host said Wednesday.

Buy the dip on ‘best-of-breed stock' Halliburton, Jim Cramer says

First Solar

Ormat Technologies

Plug Power

Should investors be adding these energy stocks to your portfolio?

5 Energy Stocks To Watch In The Stock Market Today

Halliburton reported a 23.5% year-over-year increase in its quarterly revenue on Tuesday.

Halliburton reported its Q1 results on Tuesday: here are the notable figures

ChampionX

TORM

Energy stocks were hot in 2021 and continue to provide strong returns in 2022. This subsector is the place to be for the best returns.

3 Energy Stocks With Excellent Potential to Energize Your Portfolio

Shares of Haliburton (NYSE: HAL) are pulling back from a long-term high and we think it is setting up the next buying opportunity for the stock. The main driver of the pullback is sentiment and profit-taking because the Q1 results, as good as they are, were barely more than what the market expected.

Buy Haliburton On Post-Earnings Weakness

Netflix

Roku

SPDR S&P 500 ETF Trust

Netflix, Roku, Halliburton and the S&P 500 ETF were our top stock trades for Wednesday. Let's look at how the chart is setting up now.

4 Top Stock Trades for Wednesday: NFLX, ROKU, HAL, S&P 500

Halliburton Co. ( HAL , Financial) reported on Tuesday an 85% jump in adjusted profit during the first quarter of 2022 and said customer spending in North America should increase due to higher demand.

Halliburton Reports High-Energy Results

Tightness across the entire energy complex in North America and elevated commodity prices supported demand.

Here's a breakdown of Halliburton's earnings after we added shares earlier

Stronger-than-expected profit from its Drilling and Evaluation division helped Halliburton (HAL) gift investors an estimate-meeting quarter.

Halliburton (HAL) Q1 Earnings Meet Estimates, Sales Beat

Halliburton's Q1 results beat analysts' average estimates, putting HAL stock in focus today. The company was upbeat about its outlook.

Why Is Halliburton (HAL) Stock in the Spotlight Today?

Halliburton Company (NYSE:HAL ) Q1 2022 Earnings Conference Call April 19, 2022 9:00 AM ET Company Participants David Coleman - Head of Investor Relations Jeff Miller - Chairman, President & Chief Executive Officer Lance Loeffler - Chief Financial Officer Conference Call Participants David Anderson - Barclays James West - Evercore ISI Chase Mulvehill - Bank of America Neil Mehta - Goldman Sachs Scott Gruber - Citigroup Ian Macpherson - Piper Sandler Connor Lynagh - Morgan Stanley Stephen Gengaro - Stifel Operator Ladies and gentlemen, thank you for standing by, and welcome to Halliburton's First Quarter 2022 Earnings Call. Please be advised that today's conference is being recorded.

Halliburton Company (HAL) CEO Jeff Miller on Q1 2022 Results - Earnings Call Transcript

Halliburton (HAL) delivered earnings and revenue surprises of 0% and 2.42%, respectively, for the quarter ended March 2022. Do the numbers hold clues to what lies ahead for the stock?

Halliburton (HAL) Q1 Earnings Match Estimates

Kinder Morgan

Murphy Oil

Shell PLC

Halliburton (HAL) and Kinder Morgan (KMI) get things rolling on the energy earnings front this week and are viewed as an important read on the sector's outlook for the current year.

Energy Q1 Earnings Underway: Can Price Rise Quell Russia Woes?

Halliburton's first-quarter earnings beat estimates but the stock is tumbling. It has risen about 82% this year.

News for Halliburton Stock (HAL)