Halliburton 2Q profit flat, still tops estimates

AP News
Posted: Jul 23, 2012 4:34 PM
Halliburton 2Q profit flat, still tops estimates

NEW YORK (AP) — Success has a downside for Halliburton.

Like other energy service firms, Halliburton has become so good at helping natural gas companies boost production that U.S. supplies are now larger than ever. That means lower prices, however, and Halliburton's business is now suffering as its customers cut back on new natural gas operations.

Halliburton Co. said Monday that second-quarter net income dipped slightly to $737 million, or 79 cents per share, from $739 million, or 80 cents per share, a year earlier. That was despite record revenue at $7.2 billion. It was Halliburton's first decline in quarterly net income since the first quarter of 2010.

The results still beat Wall Street estimates, and shares rose 2.4 percent to $31.51.

Halliburton relies more on its North American natural gas business than other major services companies. So, as companies cut back on drilling in the U.S. following a plunge in natural gas prices, Halliburton felt more of a pinch. Its North American profit dropped 14 percent. Second-quarter net income rose 5 percent at Schlumberger Ltd. and 30 percent at Baker Hughes Inc. largely on the strength of their overseas and offshore drilling operations.

Chairman and CEO Dave Lesar said well owners are still cautious about natural gas even though prices have improved this summer.

"We believe that recent volatility in oil and softness in natural gas liquids may prompt certain customers to adopt a more cautious tone," Lesar said.

Petroleum service firms perform a wide range of contract work for the industry. They analyze underground oil and gas deposits, and they rent specialized equipment for drilling and maintaining underwater wells. Halliburton also is a major provider of hydraulic fracturing, or "fracking," services that unlock oil and natural gas from underground shale deposits.

Lesar said those services were increasingly in demand internationally in the second quarter. The number of oil and gas rigs operating internationally rose by 3 percent in the quarter, and company revenues increased in Latin America, Europe, Africa, the Middle East and Asia. That helped offset a 17 percent decline in rig activity in North America, which cut into contract revenues.

Halliburton's profit outside North America increased 83.7 percent.

On the cost side, Halliburton paid higher prices for a material that's used in the fracking process. Guar gum, a substance better known for its ability to thicken ice cream, has become more expensive this year as supplies tightened around the world. Halliburton responded by stocking up on guar gum, only later realizing it had made a bad bet. The shortage turned out to be only temporary, and prices dropped.

Now, Lesar said, Halliburton is stuck with a surplus of guar gum that it bought at peak prices.

"Simply put, we made the wrong decision," he said. "The result is we bought too much guar too early and paid too much for it. We should not have purchased the extra inventory."

Lesar said the company will work off the extra guar supplies by the end of the year.