The banks may be in the Q1 happy club, but that’s not so much the case for oil firms, and specifically the oil services firms, which this time last year happened to be the talk of the markets (see chart below).
Oh, how things change. Halliburton, the second-largest oilfield-services provider, on Monday announced a 35 per cent fall in its Q1 profits on a decline in exploration and production spending linked to the fall in global oil prices.
In all, net income at the company dropped to $378m, or 42 cents a share, from $580m, or 63 cents, a year earlier. Consolidated revenue in the first quarter, meanwhile, was $3.9bn, down 3 per cent from the first quarter of 2008.
As CEO Dave Lesar highlights, the problem for Halliburton in the quarter was its high exposure to North American drilling activity. As he explains, emphasis FT Alphaville’s:
“During the first quarter, we experienced significant volume reduction and margin compression due to the steep downturn in North America drilling activity. The first quarter brought unprecedented declines in the rig count and prolonged weakness to the commodity markets. These industry-wide declines have been exacerbated by restrictions to some of our customers’ access to capital and the decrease in global demand for oil and natural gas,” said Dave Lesar, chairman, president and chief executive officer.
As for the outlook:
“Industry prospects will continue to be weak in the coming quarters, and visibility to the ultimate depth and length of this cycle remains uncertain. However, we believe that the long-term prospects of the industry remain sound. We will continue to manage through this downturn focusing on expanding our market position, reducing input costs, and delivering the superior execution our customers have come to expect. We will make the strategic investments to emerge even stronger when the industry recovers,” concluded Lesar.
With revenue growth at Halliburton’s outside North America’ operations coming in at 3 per cent, it’s no surprise the firm is increasingly looking to expand operations overseas. However, in the immediate future it’s unlikely Halliburton will be able to deliver anything but a performance correlated to US drilling activity. For anyone considering investing in the company, it’s probably worth pointing out a) just how close that correlation is (note the two charts below) and b) the fact the industry’s view on US rig counts is hardly optimistic (note relevant par from the Fed’s March Beige book highlighted below).
The demand for oil services and drilling equipment continues to shrink with the rig count. Over the past six weeks the number of U.S. working rigs is down by 300 or 22 percent. Texas, New Mexico and Louisiana all had significant losses, especially Texas which lost 168 rigs – over half the national total.
US rig counts, as compiled by Baker Hughes:
Halliburton share price:
Related links:
Rig counting – FT Alphaville
Number of active oil rigs falls by 30 – Associated Press