Warning about earnings carves 6 percent off shares
Halliburton shares fell sharply Tuesday after the oil-field-services giant said its quarterly profit would miss Wall Street estimates because of weaker drilling activity in North America.
The world's second-largest oil-field-services company after Schlumberger said it will earn 49 to 54 cents per share in the first three months of 2007. Analysts polled by Thomson Financial were expecting a profit, on average, of 59 cents a share. In a prepared statement, Halliburton said a "significant portion" of the lower results was a result of decreased drilling and completion work in Canada and the northern U.S.
But it said cost overruns at a gas-to-liquids project in Escravos, Nigeria, which is 50 percent owned by the company's KBR unit, and possible charges related to another KBR project in Algeria were not factors in the warning.
After the announcement, Halliburton's stock price closed down nearly 6 percent, to $30.50 a share in heavy trading on the New York Stock Exchange.
It also pulled down the stock prices of Halliburton competitors such as Schlumberger, Weatherford International and BJ Services in a sign of broader investor worries about the outlook for oil and natural gas drilling in the U.S. and Canada.
The concerns stem from signs that the North American market has more drilling rigs than needed to meet demand, said Bill Herbert, an industry analyst with Simmons & Company International in Houston. The situation is putting pressure on the rates charged by drillers and the companies that supply them, he said.
"It's sort of a reaffirmation that anyone who is landlocked or geographically constrained in North America is going to have some challenges," Herbert said.
Halliburton, which depends on North America for almost half of its sales, said last week it will move its top office and CEO to Dubai in an effort to expand its business in the Eastern Hemisphere. The move comes as rivals like Baker Hughes are also expanding their presence in the oil-rich Middle East.
Jim Cramer, host of CNBC's Mad Money, said Tuesday that Halliburton's move to Dubai is a recognition by the company that it is "way too heavily levered" in North America. And he urged investors to snap up company shares because they are cheap and the firm has a strong cash position.
Halliburton is in the process of cutting ties with KBR, a massive government contracting and construction subsidiary, whose dealings have at times created controversy.
Last November, the company conducted an initial public offering of 19 percent of KBR, the largest U.S. contractor in Iraq. Next week, it will begin unloading its remaining stake by offering shareholders the opportunity to buy the KBR shares it still owns.
After the exchange offer is over, Halliburton will distribute leftover KBR stock to shareholders in the form of a dividend, with the full spinoff expected to end by April. Chron
