Halliburton can't move away from natural gas fast enough for investors.
The energy services company, a pioneer in North America's shale gas boom, on Monday warned that more customers will scale back gas production this year due to low prices. The forecast lowered the company's stock price by 3 percent.
The shift away from natural gas "will have a short-term impact on our margins," CEO Dave Lesar told investors.
But it also comes with some long-term benefits.
Halliburton, which drills wells and gets them ready for production, is moving with the industry to focus on fields that hold more oil than gas. That should generate higher revenues than before since oil production tends to be a more intensive, allowing Halliburton to charge higher contract rates.
But "this requires redeployment of people and equipment," Lesar said. "It disrupts a very efficient operation and as well is requiring us to make adjustments to our supply chain."
Shares fell 76 cents, or 2.1 percent, to close at $35.44 Monday.
Argus Research analyst Phil Weiss said investors are focusing on the short-term, punishing Halliburton for what probably will be a minor, 1 percent dip in profit margin in the first three months of the year. Afterward, Halliburton will benefit from more profitable oil drilling operations.
Petroleum companies have been moving away from natural gas production in the U.S. because it's created an oversupply that has lowered prices. They've become so good at extracting gas from underground shale layers that U.S. gas stockpiles have bulged well above the five-year average for this time of year. As supplies grow, natural gas prices have tumbled to the lowest wintertime price in a decade.
As gas prices dropped, drillers have put a premium on oil-rich fields and are increasingly turning away from deposits that contain mostly gas.
In the final three months of 2011, the price of benchmark crude jumped more than 10 percent while natural gas prices dropped by 13 percent.
Those moves are changing the priorities for energy companies.
Chesapeake Energy Corp., the nation's second largest natural gas producer, said Monday that it plans to cut its current daily production by 8 percent.
Meanwhile, Apache Corp. said it spend $2.85 billion for 254,000 net acres in the Oklahoma and the Texas Panhandle, where the company sees a strong potential for producing new sources of oil.
Halliburton, which has been involved in shale gas drilling for more than a decade, said the projects customers demand are changing after a rapid growth that boosted Halliburton's profits throughout 2011.
Net income spiked 50 percent in the final three months of 2011 to $906 million, or 98 cents per share. Revenue increased 36.9 percent to $7.06 billion.
Besides its shale business, Halliburton saw a surge in drilling in Gulf of Mexico during the fourth quarter. Gulf drilling projects generated more revenue for Halliburton in the quarter than they did before the April 2010 Macondo spill. Operating income also grew in Latin America, while falling in Europe and North Africa and holding steady in the Middle East.
Lesar said the company continues to export drilling techniques it learned in the U.S. with shale projects in Argentina, Mexico, Saudi Arabia, Australia and Poland.
Overall, the company's completion and production business increased profits 58 percent while its drilling and evaluation business increased profits by 35.6 percent.
Lesar said he expects the company to increase revenue worldwide in 2012.
Schlumberger Ltd., another major oil services firm, reported a 36 percent jump in fourth-quarter profits last week.
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