Oilfield services giant Halliburton saw its international profits plunge in the first three months of the year, but North American activity sustained the company, led by strong growth in unconventional natural gas and oil basins.

“We saw a sharp contrast between our North American and international markets” in the first three months of 2010, CEO Dave Lesar said during a conference call with energy analysts. “We had a 19% increase in our North American business, offset by contraction in international operations…We are seeing a rebound in U.S. drilling activity, combined with a secular trend with more intensive work in meaningful plays. This is most evident in stimulation [to hydraulically fracture wells], which are at levels we’ve not seen since 2008. That’s led to improved pricing across most of our service lines.”

The rising activity levels are “most evident in those service-intensive plays,” he said, which include the Bakken Shale, an unconventional oil play in the Williston Basin, as well as the dry gas Haynesville and Woodford shale plays, and the Eagle Ford wet gas shale in South Texas. In those plays, Lesar said, “the demand for equipment is far outstripping capacity.”

Halliburton now is running 24-hour-a-day operations in the Haynesville and Bakken plays, and nearly all-day operations in “other gas basins in the Rockies and Eagle Ford,” Lesar added. The increased work has led the company to bump up its U.S. workforce by about 2%, or 1,200 people, since the beginning of the year.

“The shift toward the major shales has continued unabated,” said the CEO.

Excluding one-time items, profits from continuing operations in the first three months of 2010 totaled $252 million (28 cents/share). Including the items, net profit fell sequentially to $206 million (23 cents/share) from 4Q2009’s $243 million (27 cents).

The big lift for Halliburton came from consolidated revenue gains, which rose sequentially in 1Q2010 to $3.8 billion from 4Q2010’s $3.7 billion. Consolidated operating income also was up sequentially to $449 million from $428 million.

North America’s natural gas “fundamentals…remain a risk to continued rig count growth in the near term,” said Lesar. “However, operator hedging positions, the need to drill to hold acreage and the shift to liquids-rich reservoirs should moderate possible activity declines and may result in a range-bound rig count for a period of time.

“We believe a sustainable recovery will only occur with an increase in natural gas demand.”

Barring “any major economic disruption,” a “steady resurgence” in international activity should come in the second half of the year and into 2011, Lesar added.

Completion and Production (C&P) revenue in 1Q2010 increased $146 million from 4Q2009 from more production enhancement and cementing activity in U.S. onshore sites and in Canada. By itself, North America C&P operating income increased $92 million because of higher activity in unconventional gas and oil basins.

Drilling and Evaluation (D&E) revenue fell $71 million from the final three months of 2009, but in North America D&E operating income increased by $35 million, benefiting from higher horizontal drilling activity in the U.S. onshore.

Halliburton earlier this month announced that it would buy Boots & Coots Inc. (see Daily GPI, April 13). Once the company is integrated into Halliburton, the unit is to focus on the “growing global intervention market for mature fields.”

The company also is actively acquiring complementary businesses and so far this year it has signed definitive agreements to buy four other oilfield service firms: Tierra Geophysical, for its a 3-D seismic ability; Wellbore Energy Solutions, which offers cleaning services for deepwater wellbores; Diamond Rotating Heads, to manage pressure drilling applications; and Watertectonics, which processes fresh water and flowback for reuse in hydraulic fracturing operations.

Halliburton’s North American gains “may be short-lived,” said Morningstar Inc. analyst Stephen Ellis.

“We believe some operators are considering slashing their natural gas drilling budgets in the second half of 2010 because of weak natural gas prices,” Ellis wrote in a note. “Halliburton indicated that operator hedging positions, the need to drill to hold acreage and a shift in focus to liquids-rich production could help stem any near-term decline in the rig count.

“Still, we think the services recovery may weaken heading into the second half of 2010, which could cause Halliburton’s North American quarterly results to flatten or even decline.”

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