Halliburton Co. (HAL:US) expects continued improvement in the North American hydraulic fracturing market and is “immediately” adding crews to begin work later this year.
The world’s largest provider of the service that blasts water, sand and chemicals underground to free trapped hydrocarbons, expects third-quarter operating profit margins in the region to be near 20 percent, the company said today in a statement. Second-quarter earnings were 32 percent above the results from the same period last year. Sales climbed 10 percent to $8.1 billion.
After two years of a falling market for fracking services from a glut in equipment, prices in the U.S. are expected to increase 2 percent this year and another 4 percent in 2015, according to a May 16 report by PacWest Consulting Partners LLC.
“You’re seeing tightening in overall frack capacity,” Luke Lemoine, an analyst at Capital One Southcoast in New Orleans, who rates the shares the equivalent of a buy and owns none, said in a phone interview. “People are going to like this, coupled with the large North America beat.”
The average number of drilling rigs active on land rose 5.6 percent in the U.S. to 1,781 in the quarter as producers seek to boost output from shale formations, according to Baker Hughes Inc. (BHI:US)
Halliburton reported earnings that were in line with the 91-cent average of 30 analysts’ estimates compiled by Bloomberg. The board of directors for the Houston-based company recently authorized an additional $4.8 billion stock buyback for a total of $6 billion.
Halliburton shares rose 0.7 percent to $71.40 at 10:22 a.m. in New York. The shares have gained 58 percent in the past year.
The company boosted its operating profit margin in North America to 18.2 percent from 17.5 percent a year earlier and increased revenue there 14 percent. Lemoine was expecting margins in the region of 17.8 percent.
New fracking equipment, which is measured in horsepower, is expected to roll out in the fourth quarter and throughout 2015, Chief Executive Officer Dave Lesar told analysts and investors today on a conference call. He didn’t specify how much would be added.
“I feel even more excited than I was last quarter about the outlook for the North American market,” Lesar said on the call. “We estimate the percentage of excess horsepower has dropped below the 10 percent mark.”
Halliburton boosted its capital spending forecast for the year to $3.3 billion from $3 billion because of the increase in fracking equipment, Chief Operating Officer Jeff Miller said today on the call.
U.S. sanctions in Russia have had a “minimal impact” on the company’s business, Miller said. There remains some risk to projects later this year should the scope of sanctions change, he said.
The company announced today that Miller has been promoted to president effective Aug. 1.
(An earlier version of this story was corrected because an analyst estimate of expected margin misstated.)
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