Halliburton Expects Less Work in North America

Halliburton Co. (NYSE: HAL) reported fiscal third-quarter results before markets opened this morning. For the quarter, the oil and gas services company posted adjusted diluted earnings per share (EPS) of $0.67 on revenues of $7.1 billion. In the same period a year ago, the company reported EPS of $0.65 on revenues of $7.2 billion. Third-quarter results compare to the Thomson Reuters consensus estimates for EPS of $0.67 and $7.14 billion in revenues.

The company's CEO said:

Overall, our outlook for the international market has not changed, and we expect a gradual progression in margins as we ramp up activity on recent wins and new projects, introduce new technologies, increase pricing on select contracts, and continue to improve results in those markets where we have made strategic investments.

In North America, revenue was down 5% and operating income was down, driven mainly by pricing pressure in hydraulic fracturing, guar cost inflation, and activity disruptions due to Hurricane Isaac. We are also seeing activity reductions by some of our customers as they continue to moderate activity to operate within their stated 2012 budgets.

Halliburton's U.S. land rig count fell by 68, about 4%, from the second-quarter total. The number of oil rigs rose by 44, but that was not enough to offset the decline in natural gas rigs. Rig counts in Canada fell even more.

We noted yesterday that the decline in U.S. land-based drilling would have an impact not only on rig counts, but rates. Halliburton and competitors like Schlumberger Ltd. (NYSE: SLB) and Baker Hughes Inc. (NYSE: BHI) will be forced to accept lower rates in order to keep their drilling rigs operating at all. And this situation could last for several quarters, at least, or until natural gas prices rise to well above $4.00 per thousand cubic and stay there.

The company did not offer new guidance, but the consensus estimates call for fourth quarter EPS of $0.73 on revenues of $7.33 billion. For the full 2012 fiscal year, EPS is estimated at $3.10 on revenues of $28.55 billion.

Halliburton's shares are inactive in premarket trading, having closed last night at $34.56 in a 52-week range is $26.28 to $40.43. Thomson Reuters had a consensus analyst price target of around $43.40 before today's report.

Paul Ausick