Shale Daily / NGI All News Access

Halliburton Sees No Slowdown in North America's Onshore

In terms of oilfield services supply and demand conditions, Halliburton Co. CEO Dave Lesar sees the U.S. unconventional basins in black-and-white terms: oversupplied, undersupplied or neutral.

Lesar and his management team held a conference call on Monday to discuss third quarter earnings and performance. Asked to characterize the supply/demand conditions in the big domestic shale and tight gas basins and the trend in spot pricing for hydraulic fracturing (fracking), the CEO got straight to the point.

"Bakken, undersupplied; Eagle Ford, undersupplied. Permian, undersupplied; Marcellus, undersupplied; Haynesville, probably oversupplied; Midcontinent, gas, dry gas, probably oversupplied; and Rocky Mountain dry gas, probably at neutral," Lesar said.

Lesar has a keen eye for what's happening in the onshore. As the world's second largest oilfield services company -- and the top fracking provider in North America -- Houston-based Halliburton has equipment and crews drilling in every major basin of the world. Today it's about one-third of the way toward reinventing its service platform for frack services toward a goal of a "frack of the future," he told energy analysts.

"We're spending two cents or two cents-plus a share per quarter reinventing how we are going to go to market in the U.S.," he said. "Now that isn't going to pay off for a couple of years. But you take that reinvention of the platform, you take 'frack of the future,' both of which we're making good progress on, and I think any market that gets thrown at us we will do as good, if not better, than any of our competitors."

The "bias" today is "toward a liquids-type market," he explained. And Halliburton is keeping busy, with more than half of its oilfield services in the North American onshore operating at up to 24 hours a day, said Tim Probert, president of Strategy and Corporate Development.

"We're well over 50% in terms of 24-hour crews in North America," said Probert. "And I think that we've done a very good job in getting to that point. We'll continue to push that up. What is the natural sort of end point for that, I'm not really sure, somewhere above 50%, somewhere below 75%..."

Halliburton's size allows it to benefit from combining services, or integrating its offering for producers in the onshore. Probert said the ability to offer integrated services has proved to be a solid earner.

"We're in a great position to push integrated services because we had some leverage...particularly from pressure pumping," he noted. "But I think the reality is today, that whilst we continue to do an increasing amount of integrated services the response from our customer base is incrementally positive about the benefits that they're seeing.

"So what I think we're doing right now is seeing a shift from perhaps, shall I say, contracted-led integrated projects to those projects by which the customers are really seeing some incremental value. That's very positive, because what it means is it will be...a sustainable model which will prevail over any ups and downs in the market."

Halliburton is seeing "quite a few" gains from performance-based pricing as well, noted Probert.

"Really, what the issue is, is you got have to have the confidence, obviously, in these positions to be able to stand by your ability to drill a certain footage in a certain time, and we're very confident to do that. We believe we've got the technology to stand behind those kind of commitments, and obviously then generate the returns and the margins that we need as a company...It's an important trend. I think in general I would say that we will expect to see greater degrees of performance-related contracting going forward than we have as we kind of look back into the rear view mirror."

Contrary to what some of the smaller producers and oilfield service operators have reported, Halliburton has not seen any softening in the pressure pumping market, said Lesar.

"We hear about these things anecdotally and try to turn the anecdote into what are the facts. And in many cases, it's a small, pumping-only service company that has a frack spread that's been cut loose by some other customer and they're going around looking for work. That's one situation you run into. Another is when a company that has decided to take a crew from the spot market to the contract market, typically, you do give a discount if a customer is willing to tie it up for a longer period of time at a guaranteed level of efficiency...

"So a lot of what we are seeing is spot-to-contract market or the one-off frack crew that's been cut loose and is just looking for a new home. But in general, no. The customer base we're looking at, and the people that want to use our equipment, we're just not seeing any softening in pricing at all."

Customers now are evaluating their 2012 capital expenditure (capex) budgets, he said.

"Our customers are obviously in the evaluation phase for their 2012 budgets right now," he noted. "We're monitoring those very closely so we can kind of get as much insight as we can into what they plan to do. There are a couple of, sort of, themes which seems to be running around. Obviously, one theme is the introduction of fresh capital from outside, which is still continuing, we're seeing that to happen.

"Secondly is the relative balance between drillbit spend and also land acquisition. That seems to be shifting in terms of, probably, a greater allocation toward a drillbit in 2012 and away from land acquisition; at least that's sort of the early returns from some of the inquiries that we had. And I guess that based on what we see today, I would say that spend next year in terms of drillbit spend, not necessarily overall capex, but drillbit spend, looks to be up. But obviously we're going to be monitoring that very carefully between now and the end of the year."

Lesar told analysts that because Halliburton builds and operates its equipment, it is able to control the market if business slows.

"I know what we do and we got basically a volume knob in our production and so we can turn it up, we can turn it down as fast as we can. I think a lot of our competitors, because they have got to put orders in and have long lead times on those, I'm not sure that they can slow it down as fast, certainly, can't slow it down as fast as we can. But I think that everybody's watching the market, and if the returns, the extraordinary returns we're getting today, start to moderate a bit for some of those companies, I suspect that there will be less equipment coming into the market."

Halliburton reported a profit of $683 million (74 cents/share), up from $544 million (60 cents) a year earlier on record quarterly revenue of $6.5 billion.

"I think it's a mistake to make any direct comparisons" between the 2008 recession and global economic turmoil occurring today, said Lesar. He then enumerated the differences. Large international oil companies today account for a larger share of drilling activity in North America than they did during the 2008 economic crisis, he said. Their healthy balance sheet ensures some stability in capex even if the smaller explorers face a cash crunch, he said.

In 2008 North American drilling was heavily weighted to natural gas, said the CEO. Today it's a "two-commodity market" with oil drilling as profitable or more profitable than gas drilling. In fact, Eagle Ford and Bakken shale drilling was a main driver of Halliburton's operating income in North America, which was 14% higher sequentially in 3Q2011 and for the first time surpassed $1 billion.

The latest economic downturn has not yet "translated into any meaningful changes" in customer behavior. In fact, Halliburton is on track to hire 17,000 employees worldwide this year, with 12,000 alone in the United States.

Comments powered by Disqus