Haliburton (HAL) Q2 2016 Earnings

posted in: Earnings Call, Notes | 0

Haliburton (HAL) CEO David Lesar said the business continued to experience pricing pressure

“Our second quarter results showed resilience in the face of another challenging quarter marked by lower activity levels and continued pricing pressure around the globe.”

But they believe the market has bottomed

“We believe the North America market has turned. We expect to see a modest uptick in rig count during the second half of the year. With our growth in market share during the downturn, we believe we are best-positioned to benefit from any recovery, including a modest one. Internationally, we are maintaining our service footprint, managing costs and continuing to gain market share.”

North America rig count has started to improve which they hope will help their business

“North America revenue declined 15% sequentially, significantly outperforming the average US rig count, which was down 23%. After falling 78% from the November 2014 peak, the US rig count reached a landing point during the second quarter, as we predicted during our last earnings call. Since reaching the bottom, the rig count has improved by 26 over the last several weeks, reflecting operator confidence in stabilizing commodity prices.”

Customer base of oil companies are thinking about growth again

“Today our customers are thinking about growing their business again rather than being focused on survival. There are 2 distinct factors at work in North America; psychological and economic and I think it’s critical to understand them both.  I spent a large amount of time with customers late in the quarter taking their pulse and I can tell you there was a growing survivor mentality out there, and you can’t underestimate the positive change in attitude that we’re seeing in our North American customers. There is a spring in their step that I didn’t see earlier in the year and in almost every case, they are talking about adding rigs, buying assets or doing something value accretive. In short they are getting back to business.”

Rig activity in Latin America is at multi-decade lows

“In Latin America, revenue declined 12% sequentially, relative to a rig count decrease of 18% from the first quarter average. Looking at our major countries, rig activity in both Brazil and Mexico is at 20-year lows, while Venezuela continues to experience significant political and economic turmoil.”

Not changing their strategy as they prepare for the recovery in their business

“As we prepare for the upcycle, our approach to the market remains unchanged. We remain focused on consistent execution, generating superior financial performance, and providing industry-leading shareholder return.”

Haliburton (HAL) President Jeff Miller said they’ve been keeping equipment operating even though its unprofitable

“Despite absorbing the pain of pricing reaching unsustainable levels, we made a strategic decision to stay in every market and keep crews running. In spite of the nearly 80% decline in rig count, our stage count only declined 33%. So here’s what we’re doing now. We preserved idle equipment outside of our field locations so it doesn’t get cannibalized. It’s clear to me that it will be cheaper to reactivate our cold stacked equipment than to put capital into cannibalized horsepower. This means we are best positioned to more quickly get back to work in the market recovery and are prepared to activate equipment when we see economic opportunities to do so.”

Haliburton (HAL) President Jeff Miller summarized their alleged competitive advantage

“Our competitive advantage is this. We collaborate, engineer solutions and execute to maximize our client’s asset value, which means a lower cost and making more barrels. This is why we maintain our global service footprint. We will own the last mile, be present across the globe and maintain dead focus on service quality.”

Haliburton (HAL) CFO Marc McCollum seeing some cost inflation 

“One of the things that we’re already beginning to see in the marketplace is a little bit of cost inflation. Diesel, we’re seeing it in some commodities and things. And so we’re already, believe it or not, at this point beginning to fight inflation.”