Halliburton reports strong revenue, profit as it fights to stay No. 2

Halliburton said Monday it significantly increased its revenue from a year earlier, showing that it doesn't plan to cede its place as the world's No. 2 energy services company to its Houston rival Baker Hughes, which merged in the summer with General Electric's oil and gas division.

Despite slowing growth in Texas shale fields and weaker-than-expected profit margins, Halliburton reported that its third-quarter revenue grew 40 percent over the same period in 2016 and its profit ballooned to $365 million, up from $7 million a year earlier, on the strength of its North American hydraulic fracturing business.

Halliburton CEO Jeff Miller said he expected Halliburton to increase its market share and continue its strong performance into next year as a large number of drilled but uncompleted wells sustained demand for Halliburton's fracking services.

"Our North American business is hitting on all cylinders, and our international business proved resilient in a challenging environment. Our fleet is sold out for the remainder of the year and into 2018," Miller said of the company's hydraulic fracturing rigs.

Halliburton was expected to lose ground to Baker Hughes and slip to No. 3 after the merger that put Baker Hughes under the GE umbrella. That twist seemed especially cruel after Halliburton's planned takeover of Baker Hughes collapsed last year amid antitrust concerns.

The new Baker Hughes has some 10,000 more people on its payroll, but Halliburton's third-quarter revenue slightly outpaced that of Baker Hughes - $5.44 billion to $5.38 billion. Halliburton also earned a healthy profit, while Baker Hughes lost more than $100 million in the third quarter as it integrates the two companies. Each company is valued on Wall Street at about $37 billion - well behind industry leader Schlumberger at $86 billion.

"It's a horse race," said Byron Pope, an energy analyst with Tudor, Pickering, Holt & Co. in Houston. "It's frankly very close between Halliburton and Baker Hughes."

Halliburton is performing better now because it is stronger in the healthier U.S. market, where production is nearing record levels, Pope said. Nearly 60 percent of Halliburton's revenue was generated in North America.

Bill Herbert, a senior energy analyst at Piper Jaffray & Co. in Houston, said Halliburton has an advantage over Baker Hughes in some ways because it is a leader in more businesses, such as fracking. Baker Hughes, however, has more breadth in equipment manufacturing and offshore services, as well as a larger international presence.

In addition, Herbert said, Baker Hughes might have a long-term advantage because it has invested more in natural gas development. Natural gas is expected to play an increasingly important role in the global energy mix because it produces fewer greenhouse gas emissions and is increasingly favored by power producers.

Demand for oil also is expected to wane in coming decades as electric vehicles are widely adopted, he said.

As for today, Halliburton CEO Jeff Miller was more optimistic than his competitors, who reported earnings on Friday. Schlumberger and Baker Hughes executives said oil prices remained volatile, making customers more nervous about expanding operations and spending more on their services.

Indeed, oil prices remain relatively depressed, and the number of rigs drilling for oil in the United States plateaued in August and has fallen ever since.

But Miller emphasized the industry is drilling almost as many wells as in 2014 when oil was priced above $100 a barrel, but, because of advancing technology, with half as many rigs. The services needed for each well has increased with longer horizontal drilling and more fracking required.

Halliburton's North American revenue jumped 14 percent from the second quarter, while the U.S. rig count only grew 6 percent. Halliburton is working to increase its prices as demand strengthens, cut costs and operate more efficiently, Miller said.

With the U.S. oil prices hovering above $50 a barrel, exploration and production companies are more likely to keep investing next year, Herbert, the analyst, said. Crude settled on Monday at $51.90 a barrel in New York, up 6 cents.

With oil above $50, Herbert said, "It's a completely different narrative."

Still, anxiety about production companies pulling back on spending to satisfy investors seeking bigger profits, coupled with disappointment in Halliburton's margins, caused Halliburton's stock to fall 2.5 percent on Monday, to $42.24 a share. Baker Hughes stock slid 5.4 percent Monday to $31.47 per share, while Schlumberger fell 2 percent to $61.91.