Halliburton began to see an upturn in the North American oilfield services market in the last three months of 2009, but it will take at least until the end of March to get a sense of where the U.S. natural gas markets are headed this year, executives said Monday.
An estimated 1,300-1,500 U.S. gas wells were awaiting completion going into 4Q2009, said Tim Probert, president of Global Business Lines and Corporate Development. Around 450 gas wells were completed in the last three months, but that leaves a lot of wells still unfinished. As the rig count dropped last year, Halliburton’s management team also expected gas production to fall.
“We’ve certainly been surprised at how well production has held up,” Probert told financial analysts during a conference call. “We predicted a different outcome. We will be working this backlog off during the course of [4Q2009] and [1Q2010], which is a net positive at the end of the day, but the tightening of supply is, after all, a one-time event. Once it’s gone, it’s largely gone…There’s a range of models out there, but we were certainly surprised by last month’s [Energy Information Administration] data, and it remains to be seen how it is going forward. I’m afraid it’s anyone’s guess at the moment.”
Before making any forecasts on the U.S. gas market for 2010, Probert said he would need to see more data. “We hope to see some incremental demand for the health of the natural gas business, and we need to see it as we exit Q1. The whole matter is a little bit of an unknown at the moment.”
The Houston-based oilfield services giant reported net income of $243 million (27 cents/share) in 4Q2009, down by almost half from $468 million (52 cents) reported in the year-ago period. Revenue fell 25% to $3.69 billion. Earnings were lower, but CEO Dave Lesar said there were encouraging signs in North American markets.
“During the fourth quarter total revenue grew 3% from the third quarter, driven by increased activity in North America,” Lesar said. “The United States rig count increased 14% from the third quarter, and revenue in North America increased 12% from the prior quarter due to robust activity in unconventional basins. Our continued investment in technology and infrastructure in these key growth basins allowed us to increase market share [and] operating margins and realize marginal pricing improvements during the quarter.
“The increase in rig count, positive withdrawals from gas storage and the focus by operators on projects with high-service intensity are positive indicators for the North America market in the short term. A sustained recovery is possible through an increase in industrial demand and exiting the heating season with storage levels in line with the historical average.”
Several producers have announced “potential increases in upstream spending for 2010 targeted for new frontier developments and ultra-deepwater where we are well positioned,” the CEO noted. “However, we expect operator investment will remain weighted toward the second half of the year.”
This is “a transition year as the industry seeks to balance supply growth with recovering hydrocarbon demand,” Lesar noted.
Like competitor Schlumberger Ltd., which reported its quarterly earnings on Friday (see Daily GPI, Jan. 25), Halliburton’s management team said the 2010 outlook in North America for oilfield service providers is unsure at this point.
“We’ll know a lot more about the North American market” at the end of March, Lesar said. “In the shale plays, to get the resource out of the ground, it’s consuming service equipment very dramatically. We have to take more horsepower to every job, and we’re grinding horsepower up in every job. The smaller players were getting their equipment used up going into the shale plays, and they are actually going away from the shale plays because it is using equipment up. If we can get the supply/demand balance for equipment in a better situation, it will give us a little more pricing power…”
Halliburton is “almost exclusively” using a drilling unit made specifically to operate in “heavy shale environments,” Lesar said. “That’s the focus on our capital spend for 2010. It’s also fair to say, with the retirements [in equipment] we’ve had, we are using up equipment…I also think the supply of pressure pumping equipment as an industry is going down a lot faster than people think. It’s a heavy toll that we’re seeing on equipment today, especially in shales.”
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