North American drilling recovery can't offset Middle East geopolitical shocks; Halliburton (HAL.US) Q2 operating profit down 6% year-on-year, missing expectations

Zhitong Finance APP reports that before the US stock market opened on Tuesday, Halliburton (HAL.US), the world’s largest hydraulic fracturing service provider, released its second-quarter financial report. The data show that the company’s Q2 revenue was $5.71 billion, a year-on-year increase of 3.7%, exceeding market expectations; adjusted earnings per share were $0.55, better than market expectations; however, adjusted operating profit was $683 million, down 6.1% year-on-year, below analysts’ average estimate of $688.7 million.

Halliburton said that with drilling and hydraulic fracturing activities in the US picking up, it expects its North American business to gradually grow this year. CEO Jeff Miller stated in the earnings report that the company was "encouraged" by the rebound in its largest market in the second quarter.

As the Iran war drives oil prices higher, shale oil producers have been expanding drilling and fracturing operations to offer alternative sources to Persian Gulf crude oil supplies. In the past 12 weeks, except for two, US oil well drilling activity has increased each week.

JP Morgan analyst Arun Jayaram noted in his report that the “unified message” from the entire hydraulic fracturing industry is that with equipment supply tightening, North American service prices are rising.

Halliburton has also expanded its overseas fracturing business, including multi-billion dollar contracts with Argentina’s state oil company YPF SA, and a multi-year unconventional gas development contract with Saudi Aramco.

Miller said: “Internationally, I am excited about the contracts Halliburton has won and the potential for future partnerships. In every region where our business operates, I see growing demand for our services and technology.”

Middle East Geopolitical Impact Becoming Apparent

Data show that Halliburton’s second-quarter North American revenue was $2.3 billion, up 7% quarter-on-quarter; international revenue was $3.4 billion, up 5% quarter-on-quarter, with revenue from the Middle East/Asia region at $1.3 billion, down 2% quarter-on-quarter.

In its earnings report, Halliburton stated that due to geopolitical conflicts in the Middle East, business activities in several areas of Kuwait, Iraq, and Qatar have decreased. Nevertheless, increased well construction in Saudi Arabia and the UAE, along with more drilling-related services in Asia, have partly offset this impact.

Halliburton is the first major oilfield services company to announce quarterly results. Its competitors Schlumberger (SLB.US) and Baker Hughes (BKR.US) are expected to release results on Friday and Sunday, respectively.

April to June was the first complete quarter after the escalation of the US-Israel-Iran war, and production in several countries including Iraq, Qatar and Kuwait faced restrictions or complete stoppage. The market expects Schlumberger to report a 31% drop in earnings per share, the largest decline since the fourth quarter of 2020; Baker Hughes’ earnings per share are expected to fall 21%. Both companies have significant exposure in the Middle East region.

As of press time, Halliburton was down 4.44% premarket, Schlumberger was down 0.02% premarket, and Baker Hughes was up 0.8% premarket.