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Halliburton's Q2 Hampered by Permian Worries as Pipelines Near Max Capacity

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Halliburton reported its Q2 2018 results.

Halliburton President & CEO Jeff Miller commented: "North America had a strong performance this quarter. This is the largest and fastest growing energy market in the world. On a year-to-date basis, we have grown revenues 47% year over year, while the U.S. land rig count has increased 16%. U.S. land achieved margins that are closing in on what we achieved during the previous peak in 2014."

Maxed Out Permian Takeaway

Similar to Schlumberger, Halliburton is expecting Permian production to oversaturate the available takeaway infrastructure in the basin - pushing pipelines to the limit. Miller noted that this could cause operators to potentially slow down activity in the future if there is no available pipeline capacity.

Concern over Permian ops caused Halliburton stock to fall by 8% today - the most since November 2014.

Miller said that he felt the company is prepared to take on the challenges stemming from these constraints, which he noted should begin to be alleviated in 2019.

In the Q2 conference call, Miller commented: "Let me put the off-take constraint in the context of what I’ve seen in the past. Tightness is an indicator of a great resource, and what is occurring in the Permian today is not new. We managed similar challenges in the Williston in the last cycle and in the DJ Basin today. The constraints in this basin should begin to alleviate in early 2019 as additional off-take capacity comes on line. The same will be true in the Permian, which is best suited to handle this type of challenge, and will do so as quickly as possible. In the interim, we are going to keep equipment working, control our costs and outperform our competitors."

Angie Sedita of UBS questioned Miller on more details about a potential slowdown in Permian activity: "So, Jeff, just to dig into a little bit further, the comments on the Permian and the customer behavior, some are moving forward and very active and then some you’re saying are reducing activity or adding fewer than expected rigs. And then, maybe you could give a little bit more color on the mix as far as the number of customers that are starting to see some slowing of activity?"

Miller responded: "Okay. Thanks, Angie. But look, Permian off-take has nominal impact today. But, as I described, it’s not naïve to the math. I mean, clearly, this is the world class resource. And the entrepreneurs in that market will get it solved, I mean never bet against them. But in the near term, I think perception has as much impact as anything. And by that, I mean weighs on customer urgency, which ultimately has an impact on our utilization and efficiency. But look, no doubt this is world class resource. As far as more color, not much more to give other than a couple of very small but leading, and I would say, nominal factors at this point with respect to off-take."

Financials:

- Income from continuing operations of $511 million, or $0.58 per diluted share, for the second quarter of 2018.

• This compares to reported income from continuing operations for the first quarter of 2018 of $46 million, or $0.05 per diluted share, and adjusted income from continuing operations for the first quarter of 2018 of $358 million, or $0.41 per diluted share, excluding impairments and other charges related to a write-down of all of the Company's remaining investment in Venezuela.

• Operating income was $789 million during the second quarter of 2018, compared to reported operating income of $354 million and adjusted operating income of $619 million in the first quarter of 2018.