Halliburton looks beyond U.S. shale, charting a “fundamentally different course”

HOUSTON (Bloomberg) --Halliburton Co. is looking away from its traditional North American heartland for sales growth as the fracking behemoth works its way through an historic oil bust.

Shares for one of the world’s biggest oilfield service providers surged more than 8% on Monday after it posted $456 million in second-quarter free cash flow -- more than double expectations. Halliburton also told investors it’s charting a “fundamentally different course” after slashing jobs and the dividend in recent months.

“As oil demand recovers, I expect the international business will continue to be a more meaningful contributor to our revenue going forward,” Chief Executive Officer Jeff Miller told analysts and investors during a conference call. “North America production is likely to remain structurally lower in the foreseeable future and has slower growth going forward.”

Miller has let go of workers and clipped Halliburton’s dividend after tumbling oil prices brought on by a global pandemic wrecked fracking far more than expected. Rival Schlumberger Ltd. predicted in April that as much as 60% of pressure pumping demand would fall off by July 1. As much as 85% of frack crews have lost work this year, according to Primary Vision Inc.

Halliburton “inked simply outstanding results vs. expectations,” analysts at Tudor Pickering Holt & Co. wrote in a note to investors. “Structural cost cuts are clearly bearing fruit.”

With 75% of its planned cost cuts complete, Miller said the rest should be done by the end of September, largely focusing on international markets and real-estate holdings.

‘Frac Holiday’

The company reported second-quarter adjusted profit of 5 cents a share, compared with the 12.3-cent average loss forecast by analysts in a Bloomberg survey. The stock was up 6.2% to $13.89 at 11:24 a.m. in New York after earlier rising as much as 8.1% for the biggest advance in five weeks.

The second quarter “marked the near total shutdown of the U.S. oilfield,” Praveen Narra, an analyst at Raymond James & Associates Inc., wrote in a note to investors last week. “Companies saw a month-long ‘frac holiday’ with little to no activity, while drilling rigs declined at their fastest ever pace.”

With U.S. oil prices hovering around $40 a barrel, shale explorers are starting to open up idled wells and chewing into a backlog of partially finished wells that were halted before they were fracked.

More than 100,000 American oil workers have lost their jobs since the pandemic-induced slump began, with service companies bearing the brunt. After more than 200 oilfield service providers went under in the past five years, 2020 is shaping up to be the worst, with the highest volume of debt owed during bankruptcy, according to a July tally by law firm Haynes & Boone LLP.

Impairments

For the first three months of the year, before the worst of the oil-market crisis, the world’s three biggest oilfield service companies each had already announced more than $1 billion in charges that reflected the deterioration of their businesses.

Halliburton followed that up with $2.1 billion in additional impairments for the second quarter, mainly due the lower value of its fracking gear and real estate.

Halliburton was the first oilfield contractor to report second-quarter results. Baker Hughes Co., the No. 2 supplier, will report July 22, followed by Schlumberger, their largest rival, at the end of the week.