Oilfield services giant Halliburton's North American revenue declined in the fourth quarter as producers pulled back activity.
Halliburton joins bigger rival Schlumberger in flagging a subdued outlook for their North American business, both remaining ready to respond to the changing market conditions and reduce spending. The outlook, which marks a change from expectations of steady 2019 expansion, stems from the wide swings in crude prices during the last three months of last year, which fell some 40pc from the highs for the year touched in mid-October of $76/bl for WTI.
"The trajectory of the cycle has been far from smooth," chief executive Jeff Miller said in the company's earnings call. "Increased price volatility creates interim headwinds as we enter 2019."
To respond to the changing market, the company has lowered its 2019 capital expenditure (capex) guidance by 20pc from a year earlier to $1.6bn.
Halliburton's North America revenue fell to $3.34bn in the fourth quarter compared with $3.4bn a year earlier and $3.74bn in the previous three months. The decline was a result of lower activity and reduced pricing in some services. But part of that drop was offset by higher demand for fluids in the offshore Gulf of Mexico. The market declined particularly because completion activity softened.
"We intend to dynamically respond to the changing market environment, reduce capital spending, develop differentiating technologies, and generate strong cash flow," Miller said.
Halliburton remains confident of multi-year growth given the supply and demand fundamentals. And the changes the oil industry is going through right now particularly in the US will set the stage future expansion. US producers have succeeded in lowering costs and improving efficiencies. They are largely sticking with their pledge to keep expenses in check, maintaining their operations within cash flows and improving returns.
"I believe this is good for the long-term prospects of our industry," Miller said.
Halliburton says it is hearing three clear themes from its customers. The majors largely look set to stay the course on their budget plans. Large independent producers have mostly budgeted for $50/bl and so their spending pattern should remain flat compared to the previous year. The smaller producers, with limited access to capital, are likely to cut their spending most aggressively if the oil price weakness persists. But conversely, this segment would also be most flexible in expanding their budgets if markets remain supportive later in the year.
Overall, Halliburton expects a broad-based rebound in completion activity in North America as the year unfolds. Producers will look to complete their inventory of drilled but uncompleted (DUC) wells, providing future revenue opportunity. Also, the infrastructure bottlenecks plaguing producers in the Permian basin, spread across Texas and New Mexico, is set to alleviate in the second half of the year.
"That means many customers should go back to work during the second quarter to get production ready for the new pipelines," Miller said.
Halliburton posted a profit of $664mn in the fourth quarter, on revenue of $5.94bn, versus a loss of $824mn a year earlier while revenue held unchanged. For the full-year, the company posted a profit of $1.66bn compared with a loss of $463mn.
