Halliburton expects margins to rebound in North America

By Swetha Gopinath

(Reuters) - Halliburton Co (HAL), the world's No.2 oilfield services provider, expects margins to improve in North America after being depressed for two years as companies step up spending to drill and complete wells.

Halliburton's shares rose as much as 5 percent to a life high after the company forecast a 25 percent jump in earnings in the current quarter, in line with market expectations.

"I am more excited about North America now than I have been since late 2011," Halliburton Chief Executive Dave Lesar said on a conference call with analysts on Monday.

"Supportive commodity prices today are translating into stronger cash flow in operating budgets for our customers...," he said.

Rivals Schlumberger Ltd (SLB.N) and Baker Hughes Inc (BHI) also spoke of improved markets in North America after posting better-than-expected quarterly profits on Thursday.

Weak natural gas prices had dragged down drilling activity in North America, intensifying competition among oilfield services providers for a smaller number of contracts.

Halliburton, which also reported better-than-expected results, said excess capacity in hydraulic fracking equipment used in shale fields had tightened much faster than expected, at least in Texas's Permian Basin.

"We don't think we'll have any problem filling our frac calendar through the end of the year," Lesar said on the call.

The company said the tightening could also help it get bigger jobs and pass on some increased prices to customers.

FURTHER INCREASES

Halliburton said it expected further increases in earnings beyond the second quarter due to the recovery in North America and strong drilling activity in international markets.

"We believe that there is going to be a healthy recovery in profitability levels for the services industry as activity continues to grow in the shale world," said Sanford C. Bernstein & Co analyst Scott Gruber.

Halliburton forecast a low-to-mid single digit improvement in revenue in percentage terms in North America and said margins would return to levels last seen in the second half of 2013.

The expected rise in drilling activity onshore United States would more than offset a seasonal halt to drilling in Canada in spring, Chief Financial Officer Mark McCollum said on the call.

Analysts said the forecast 25 percent growth in second-quarter profit ending June would translate to 91 cents per share, in line with the average estimate.

GLOBAL GROWTH

The company, traditionally dominant in the United States, has been making a big push into international markets to combat the weakness in North America in recent quarters.

Revenue and operating income increased 13 percent in the Middle East and Asia region in the first quarter.

Revenue in Europe, Africa and the Commonwealth of Independent States (CIS) rose 9 percent, while operating income jumped 21 percent.

Revenue fell 9 percent in Latin America, while operating income declined 8 percent due to reduced drilling activity in Brazil and Mexico.

Revenue increased 5 percent, while operating income was flat in North America. The company said operations in the region were hurt by lower prices for pressure pumping services, higher logistics costs and disruptions in drilling due to the harsh weather.

Net income attributable to Halliburton was $622 million, or 73 cents per share, in the first quarter, compared with a loss of $18 million, or 2 cents per share, a year earlier.

Analysts on average had expected earnings of 71 cents per share, according to Thomson Reuters I/B/E/S.

The year earlier quarter included a pre-tax charge of $1 billion related to the Gulf of Mexico spill in 2010.

Halliburton was a contractor for BP Plc (BP.L), owner of the well that blew out causing the worst offshore oil spill in the United States.

Revenue rose about 5 percent to $7.35 billion, beating analysts' average estimate of $7.24 billion.

Halliburton's shares were up 3 percent at $62.81 in morning trade. The stock gained 20 percent this year up to Thursday's close.

Baker Hughes shares were up 2 percent at $69.84, while Schlumberger was up nearly 2 percent at $101.66.

(Additional reporting by Kanika Sikka in Bangalore; Editing by Sriraj Kalluvila)