Halliburton quarterly profit falls on inflated fracking costs

Halliburton Co. (HAL), the world’s largest provider of hydraulic fracturing, said second-quarter profit decreased as the business of fracking grew more costly in the U.S.

Net income dropped to $737 million, or 79 cents a share, from $739 million, or 80 cents, a year earlier, Houston-based Halliburton said in a statement today on Business Wire. The company was expected to earn 75 cents a share, the average of 10 analysts’ estimates compiled by Bloomberg.

Halliburton said June 6 that second-quarter North American operating profit margins will be 5 to 5.5 percentage points lower than in the first quarter, compared with a previous forecast of a 2 to 2.5 percentage point reduction, because of higher material costs.

The world’s second-largest oilfield services provider helps companies drill and complete oil and natural-gas wells using a pressure-pumping technique known as fracking, which blasts water mixed with sand and chemicals underground to free trapped hydrocarbons from shale formations.

“The pressure pumping market went from very tight in the middle of last year to a little bit looser now,” Jeff Tillery, an analyst at Tudor Pickering Holt & Co. in Houston who rates the shares a buy and owns none, said in a telephone interview before the earnings were released. “There’s been pretty significant cost inflation in that business.”

Fracking capacity in North America was expected to rise 28 percent this year to about 18 million horsepower after growing 42 percent in 2011, according to Tulsa, Oklahoma-based Spears & Associates, a consulting firm. Fracking capacity is measured in horsepower rather than number of active pumping trucks to accommodate for size differences.

Lower Prices

Increased competition has lowered prices for fracking services, Tillery said. Service companies are also facing higher costs as fracking supplies and transportation of the materials to the well site are in high demand.

A potential shortage of guar gum, an agricultural commodity used to blend materials used in fracking, has driven up prices more than expected, Halliburton said in June.

Tillery said he expected Halliburton’s North American operating income to fall to about 20 percent, from 29 percent a year earlier.

The average number of active oil and gas rigs in the U.S. rose 7.9 percent in the quarter to 1,970, from 1,826 a year earlier, according to Baker Hughes Inc. (BHI)

The earnings statement was released before the start of regular trading on U.S. markets. Halliburton rose 1.9 percent, to $30.77 July 20 in New York. The shares, which have 24 buy and seven hold ratings from analysts, fell 14 percent during the quarter.

Schlumberger Ltd. (SLB) is the world’s largest oilfield-services provider. The Houston-based company reported last week that its quarterly earnings rose 4.8 percent, despite weaker fracturing demand.

Read the latest earning reports here.

Schlumberger’s earnings up, despite weaker fracturing demand
Baker Hughes posts 30 percent profit jump in second quarter