Halliburton posts profit in good sign for industry
Halliburton is back in the black as oil industry hopes a bellwether’s results show the bust is truly fading
The U.S. energy sector shows signs that the effects of the oil bust are beginning to fade as industry bellwether Halliburton reports a small profit for the first time this year.
The U.S. energy sector on Wednesday showed signs that the effects of the two-year oil bust are beginning to fade as industry bellwether Halliburton reported a relatively small profit for the first time this year.
The Houston oil field services company kicked off the third-quarter earnings season with a surprise $6 million profit — any profit at all is considered good news in this environment — while equipment maker FMC Technologies reported a $32 million gain. However, Halliburton’s chief executive, Dave Lesar, said he expects the impact of the extended downturn to linger through the rest of the year, before improvement in 2017.
That outlook was perhaps illustrated by Houston pipeline company Kinder Morgan, which reported its first quarterly loss of the year as ripples from the bust reached its business. Kinder Morgan said it lost $227 million for the third quarter, compared with a $186 million profit during the same time last year.
Still, many analysts believe no energy company better sets the tone for
the U.S. oil and gas sector than Halliburton, which is the market leader for energy services in North America. Globally, it is the second-largest energy services company after Schlumberger, which reports its earnings Thursday.
Halliburton said it maintained its worldwide employment at some 50,000 workers, about the same as three months ago, ending the mass layoffs that swept through the company over the past several quarters. Halliburton has cut about 35,000 jobs in less than two years.
“I never thought I’d be so satisfied with barely making a profit,” Lesar said in a call with analysts. The company lost $3.2 billion in the second quarter and $54 million in the third quarter of 2015.
Halliburton’s stock jumped more than 4 percent, to $49.07 a share, the highest close in almost 18 months.
Lesar said the worst is over but emphasized the recovery is getting underway slowly, and won’t be more visible until next year. He said sustained pricing of more than $50 is needed for production companies, Halliburton’s customers, to significantly increase drilling activities. U.S. oil prices settled Wednesday at their highest level in 15 months — $51.60 per barrel, up $1.31 on the day.
Rising prices have led companies to return rigs to operation in U.S. oil fields over the past few months, and Halliburton’s North American revenues increased 9 percent in the third quarter from the previous three months.
Those gains, however were largely offset by continuing declines internationally and offshore.
Even though Halliburton’s revenue, about $3.8 billion, remained flat, the small profit proved “much better than expected,” said Bill Herbert, a senior energy analyst at investment research firm Piper Jaffray & Co. James West, an analyst at investment bank Evercore-ISI, said he expects the recovery to proceed slowly over the next few months before picking up in February.
“I think we have turned the corner in North America, ” West said. “I think hiring will pick up early next year.”
But Stewart Glickman, an stock analyst with CFRA Research, warned about becoming too optimistic. He said the industry still faces a long slog to recover from the bust — the worst in 30 years.
“People are reacting to the confirmation of the trajectory but not thinking about how long it will take to get there,” Glickman said. “I’m wary about the pace of recovery.”
In other earnings reports, FMC said it is well positioned to grow after making significant cutbacks leading up to its pending merger with Paris-based Technip. The two energy giants agreed to a $13 billion merger of equals in May that is expected to close early next year.
Likewise, Kinder Morgan’s co-founder and executive chairman, Rich Kinder, said the pipeline company is poised to grow after using its cash — some freed up from asset sales and after the company in December cut its dividend by nearly 75 percent — to pay down much of its debt. Kinder said the tentative plan is to “substantially” increase the dividend again, but he did not provide a timetable.
Kinder Morgan is getting into the business of exporting liquefied natural gas, and construction is slated to begin Nov. 1 on the company’s $2 billion Elba Liquefaction Project at the Elba Island LNG terminal in Georgia. Liquefaction is the process used to turn natural gas into a liquid.
Also, a final decision is expected in December on Kinder’s $5.4 billion Trans Mountain crude oil pipeline expansion project in Canada.
Both Kinder Morgan and FMC reported earnings after markets closed.
Kinder Morgan’s stock gained 53 cents, or 2.6 percent, to close at $20.71 a share Wednesday. FMC’s shares rose 34 cents, or 1 percent, to $31.49.