Halliburton Co., one of the world's largest oil and gas services firms, said Wednesday that rapidly increasing costs for a product used in drilling will hurt its second quarter results.
The product is guar gum, one of the ingredients used in hydraulic fracturing or fracking. The Houston company is one of the leading providers of fracking services, where a high-pressure mix of water, sand and chemicals is sent down a well to crack shale rock and release trapped oil and natural gas.
As drilling demand has increased so has the need for guar gum, which is used as a blending additive. Halliburton says the price has jumped recently because of fears of a shortage later this year. India is the primary source for guar gum,
Halliburton's stock sank after the announcement, falling $1.39, or 4.8 percent, to $27.73. It has fallen about 14 percent in a month and is closing in on its low of the past 52 weeks.
Halliburton expects its second-quarter margins in North America will be 3 percent lower than previously expected, or about 5 to 5.5 percent lower than a year ago. Even before costs for guar gum spiked, pricing pressure was dragging down margins. It expects to see gradual improvement as it signs contracts for new work.
Halliburton's North American business has operating income of $1.06 billion in the first quarter, a decline from $1.12 billion in the fourth quarter of 2011.
The company is looking for guar gum alternatives so it can lessen the impact of the rising cost in the second half of the year. It is scheduled to release second quarter results on July 23.