Horizontal wells help Halliburton profit stand taller

U.S. shale plays have become laboratories for oil company experiments that Halliburton executives say require an unprecedented level of oil field service intensity - a windfall for the Houston company's bottom line.

Speaking with investors Monday, Halliburton President Jeff Miller said U.S. energy companies are tapping more horizontal wellbore sections called stages during hydraulic fracturing - the well completion technology that involves blasting water, chemicals and sand underground to break into shale resources.

They're also pumping more sand with their subterranean payloads, to hold open fissures in the rock that act as pathways for freed hydrocarbons. And in West Texas, they're deploying a lot more horizontal drilling rigs.

"Our customers are experimenting with larger completion volumes in almost every basin," Miller said. "This is a fundamental change in well design that we believe is part of a continuing trend."

It explains why Houston-based Halliburton, the oil field service company with the largest U.S. fleet of hydraulic fracturing equipment, on Monday posted a 70 percent boost in third-quarter profit.

The U.S. horizontal rig count grew 20 percent over the last year, while the number of stages tapped in oil wells was up more than 30 percent, and the average amount of sand used in hydraulic fracturing jobs increased more than 50 percent, Miller said.

Halliburton banked a profit of $1.2 billion, or $1.42 a share, in the July-September period, compared with $706 million, or 79 cents a share, in the same period last year. Revenue increased from $7.5 billion to $8.7 billion.

Much of the rise in profit came from its North American division and its post-drilling oil well completion business. But Halliburton CEO Dave Lesar acknowledged that logistical problems in getting sand to U.S. fracturing sites caused the company and its rivals to "miss some jobs," and that prompted Halliburton to take extra steps.

It more than doubled its sand-storage capacity at shale play terminals, got on track to double a rail car fleet that hauls sand from northern mines, and has cut 30 new deals with suppliers so far this year. Halliburton, Miller said, also recently started up a sand-logistics command center in Houston to monitor sand supply levels in U.S. basins and track its rail and trucking fleets in real time.

Halliburton rivals Schlumberger and Baker Hughes both posted double-digit profit increases last week, also noting strong North American demand for oil well completion services like hydraulic fracturing.

The pressure pumping used in the process got a boost as horizontal drilling picked up in West Texas' Permian Basin.

In a few months, pressure pumping equipment that had been idle found work in West Texas and in other plays until - as Baker Hughes CEO Martin Craighead said last week - all of the industry's extra pumping supply ran out.

North America contributed most to the income boost for Halliburton's completion and production business, climbing from $489 million to$765 million. Meanwhile, the company's North American drilling income fell from $168 million to $141 million.

Income in Latin America fell 11 percent. Earnings from Europe and Africa increased 7.5 percent, while Halliburton's Middle Eastern income grew from $200 million to $262 million, largely because of a resurgence of activity in Saudi Arabia, Oman and Angola.

Halliburton also said it would increase its quarterly dividend by 3 cents a share, to 18 cents a share.

Sliding oil prices have loomed large over the U.S. shale bonanza in recent months, but Miller said Halliburton's oil company customers don't expect the price decline to affect their capital spending, the central income source of oil field service companies.

"Budgets are moving up, not down," Miller said. "Everything I see looks like it's increasing in 2015."

Miller's comments echoed proclamations by Schlumberger CEO Paal Kibsgaard, who told investors last week he expects international oil prices to stabilize and that absolute oil demand has changed little, despite fears of an oversupply of crude.

"Given the strength of the U.S. economy, the ongoing efforts to stimulate and manage growth in Europe and China, we continue to believe that the slow but steady recovery in the global economy is still intact and that the overall oil demand situation is largely unchanged," Kibsgaard had said in a conference call Friday.

He said despite worries over economic growth in China and Europe, global gross domestic product is only slated to grow 0.2 percent less than originally forecast in 2014 and 2015 - at 3.7 percent and 3.2 percent. And absolute oil demand, according to the International Energy Agency, is only down 200,000 barrels a day from its peak in July.

"Oil demand is currently set to increase by 1.1 million barrels per day in 2015, which will require growth" in exploration and production investments, Kibsgaard said.

Halliburton shares inched up 32 cents Monday to $52.92 on the New York Stock Exchange.