Shale gas boom raises Halliburton prospects

Oil services company releases best-in-class second-quarter data.

Analysts are recommending Halliburton's stock after the US oil services company released best-in-class second-quarter results. The company's "significant North American leverage coupled with its diverse international portfolio position it well for solid earnings growth and strong returns on capital over the next several years", the brokerage firm Raymond James said recently.

The US shale gas boom has driven Halliburton's strong performance this year by spurring onshore drilling activity. The world's second-biggest drilling contractor is a leader in high precision horizontal drilling, which enables producers to tap complex reservoirs where gas is trapped in thin layers of shale and other types of rock. Halliburton's revenue increased 17 per cent between the first and second quarters, while its North American business grew by 24 per cent. "What makes this result even more impressive is the fact that it comes close to doubling the 13 per cent sequential increase in North American land rigs," said Stephen Simpson, a financial consultant writing for Investopedia.

He noted that Halliburton had also reported a 70 per cent sequential increase in operating income. Halliburton's business model enabled it to leverage its cost base to deliver "excellent profits" as drilling increased, Mr Simpson said. Conversely, it was more vulnerable to downturns than rivals such as Schlumberger and Baker Hughes. Halliburton's net earnings were 80 per cent higher than a year earlier, compared with increases of 33 per cent for Schlumberger and 7 per cent for Baker Hughes.

In February, analysts predicted that Halliburton would outperform those rivals, which were "distracted" by large acquisitions and the need to integrate operations. Halliburton's other area of expertise, deepwater drilling, has not been a draw for investors following the BP Gulf of Mexico oil spill. But Mr Simpson said he saw that as a buying opportunity. [e-mail]