Halliburton looks on the bright side of drilling moratorium

When Halliburton released its results, the numbers looked great: For the second quarter, Halliburton’s net income was better than expected, at $480m, or 53 cents per share, up 83 per cent from $262m, or 29 cents per share, in the year-earlier quarter. Its revenue was $4.4bn, up 25 per cent from $3.5bn in the same quarter last year. But the oil services provider noted that the impact of the US government moratorium in the Gulf of Mexico would be felt in the future.

From the statement by Dave Lesar, Halliburton’s chief executive:

The tragic incident that occurred in the Gulf of Mexico, and the subsequent suspension of deepwater drilling, we believe, will usher in a new regulatory climate and will have a profound impact on how deepwater drilling is performed. We are taking appropriate actions to mitigate the impact of the reduced activity in our Gulf of Mexico business, including redeploying our people and equipment to other areas of stable or increasing activity. Despite these moves, we estimate that the deepwater drilling suspension will negatively impact our earnings by 5-8 cents per quarter for the remainder of 2010.

Sounds like bad news. But that is only part of the picture: that for the short term. In the long term, Halliburton expects the tougher regulatory climate from the moratorium will give it a new source of business. From Mr Lesar:

The events in the Gulf of Mexico have not stifled our enthusiasm for increased deepwater activity in the coming years. Deepwater will continue to serve as an important source of hydrocarbons necessary to meet future energy demand. Contributions from the service sector can play a valuable role in developoing new technolgical innovations and best practices to help customers operate safely and efficiently in these challenging conditions and will generate a corresponding increase in service intensity.

In other words, there is light at the end of the tunnel. There will be a need for more work for companies such as Halliburton to help the oil producers carry out the tougher requirements, build the safer equipment, and perform the heightened operations not only in the Gulf but likely in many deepwater basins around the world.

So even as the oil services company may feel the impact of the moratorium in the coming months on the downside, they will certainly feel it, on the upside, next year and in the years to come. Not a bad trade-off, investors might feel.

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