Halliburton Company (HAL) has seen its stock rally more than 35% and has benefited from sustained fracking activity, despite price degredation, and the pricing decreases caused by the oversupply of pressure pumping capacity in North America, says Nigel Browne, an Equity Research Analyst at Macquarie Capital.
“We started to see pricing degradation in fracking services in North America, driven by the crude oil prices that fell off on global macroeconomic fears. But we did not see a huge downturn in activity; instead, we saw a number of operators pushing some of their noncritical projects to the right,” said Browne. “Second, there was an oversupply of pressure pumping capacity in North America to the tune of approximately 20% to 25%. As a result, we saw pricing decreases, and Halliburton was most levered to that headwind.”
Browne upgraded HAL from “neutral” to “outperform,” and he says the company will see advantages in sustained spending in exploring and drilling for new reserves while the industry and financial markets grow more comfortable with the global macroeconomic picture.
“Brent crude oil is currently sitting at around $115 per barrel, and WTI is sitting at $98 or so…That’s a really positive signal for a number of E&P companies to accelerate spending, which in turn will consume a lot more services,” Browne said.
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