The services market has fundamentally changed as E&Ps continue to combine, pushing Halliburton Co. into an increasingly competitive market.

After a year of consolidation, this month, two supermajors made deals that have already altered their respective basins. In the Permian Basin, Exxon Mobil agreed to buy Pioneer Natural Resources in a blockbuster deal; while in the Williston Basin, Chevron Corp. will absorb Hess Corp. In gassier plays, Chesapeake Energy is also reportedly considering a deal to acquire Southwestern Energy Co.

“We know that in a competitive market, to capture value, you must first create value,” said Jeff Miller, Halliburton’s chairman, president and CEO, said during an Oct. 24 call discussing the results. 

“Today the market is more consolidated, more focused on returns and more focused on free cash flow generation,” Miller said. “We see the benefits of this change. Customers assign value to technology and efficiency, and the service industry is rewarded for returns rather than growth.

“Never before has the success of our North America business been better aligned with the success of our customers who make significant long-term investments in the region.” 

Miller expects the market for oilfield services to tighten as asset-intensive offshore activity increases, and he noted Halliburton is seeing growth in its offshore business. Enverus has estimated that about 80% of Chevron’s deal for Hess is being allocated toward Hess’ stake in offshore Guyana.

“We've got a tightening of capacity that sort of comes at a higher rate from offshore work just because it requires more capital offshore than it does onshore. And so the type of activity that we're seeing is continuing to tighten the market at the same time. So that's driving pricing to a large degree,” Miller said.

Miller said the recent consolidation in the operator space demonstrates the importance of oil and gas globally.

“What we're seeing are big players that take a really long view, and these are the kind of customers that clearly work through cycles, and so I think we'll see a much more stable North America,” he said. “Most of our work is with very large privates and publics, and so I like our position there.” 

The consolidation activity also reflects the long-term importance of North America in the energy mix, he said.

“It's hard for me to imagine operators wanting to be smaller rather than bigger, given $85/bbl [to] $90/bbl commodity price. So I think that will drive a certain amount of activity,” Miller said.

Activity to grow in 2024

Miller said stability of the company’s North American business and the profitability of international growth contributed to the quarterly results. Based on the expectation that energy demand will continue to grow, Miller said he expects growth for oilfield services to continue in 2024 and beyond.

“Everything I see today strengthens my conviction in the long duration of this upcycle,” he said. 

Halliburton’s North American business unit delivered “as expected” in the quarter amidst changing market conditions, he said. While rig count is down 20% since the fourth quarter of 2022, the company’s North America segment has retained strong margins, he said.

 “That's quite a different result from what Halliburton would've delivered in prior cycles. Since 2015, we’ve changed our strategy, we’ve changed our operating model, and the market structure changed,” he said. 

In the company’s completions segment, that includes retiring and replacing older equipment that no longer generates sufficient returns, he said. 

“It's not a perfect science of one-to-one, but we've had an opportunity this year to retire diesel fleets” and replace them with electric fleets, Miller said.

Halliburton posted third-quarter 2023 net income of $716 million on total revenue of $5.8 billion and anticipates further demand growth in 2024 and beyond, Miller said.

Piper Sandler analysts said the quarter was a slight positive with a “~2% EBITDA beat that was driven by C&P [cementing and pumping] margins +110 bps q/q vs a flat guide,” analyst Luke Lemoine wrote in an Oct. 24 commentary. “Within C&P, [international] margins expanded, and [North American] margins were fairly flat despite the US land slowdown. FCF of $511MM was below the Street's $594MM, and another $200MM of shares were repurchased.”

Halliburton CFO Eric Carre attributed results to increased stimulation activity, internationally higher cementing activity in the eastern hemisphere and improved completion tool sales globally. Carre noted lower pressure pumping services in North America partially offset the increases.

The service company repurchased $198 million of common stock and repaid $150 million of debt.

The company generated $500 million of free cash flow during the quarter. 

Net income for second quarter 2023 was $691 million on revenue of $5.8 billion. 

Jefferies reported Halliburton’s third-quarter revenue was 0.8% below consensus but that operating income came in at $1.04 billion, 1.2% above consensus, “resulting in [an] operating income margin of 17.9%,” according to an Oct. 24 report by analyst Lloyd Byrne.

Fracking, e-fleets to grow

Looking ahead to next year, Halliburton is adding new equipment, including its ZEUS electric pumping units, under new long-term contracts. 

“The operators that we're talking to about e-fleets are the kind of operators that will always have equipment,” Miller said. “Describe a scenario where you won't be fracking at all. And the answer to that is, there is no scenario where a large operator will not be fracking. Then it becomes why wouldn't you want that [electric] fleet?”

Because the high-performance e-frac units burn natural gas and emit less and are the “lowest cost operating fleet,” the long-term contractual commitments aren’t a “huge hurdle to get over for customers that are committed to the long term in this business,” he said.

He also said more than of 60% of the e-frac business is from repeat customers.

“These aren’t science projects,” Miller said. They are “being baked into workflows.”

Miller noted the company’s lift business is growing. Internationally, lift contracts are expanding with trials in the Middle East, leading to “meaningful traction,” and in Latin America where there has been “quite a bit of success,” he said. 

Electrical submersible pumps (ESPs) “are becoming more resilient,” he said, adding the technology continues to improve. 

Comments