Halliburton & Weatherford Earnings Not Good Enough In Oil Services (HAL, WFT, SLB, BHI, OIH)

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Oil field services biggies, Halliburton (NYSE:HAL) and Weatherford (NYSE:WFT), reported first quarter results before the market opened this morning. Halliburton reported EPS of $0.64 on revenue of $4.03 billion, and First Call had estimates at $0.64 EPS on $3.99 Billion.  Weatherford reported EPS of $0.76 on revenue of $2.2 billion, while First Call was at $1.00 EPS on $2.27 Billion in revenues.  Outside of items, Weatherford would have posted $1.01 EPS.   

Both companies noted that U.S. operations suffered from pricing pressure, and that international results have improved. In early trading, HAL is down $0.40, and WFT a whopping $1.56, even though the company also announced a 2-1 stock split with today’s results.

Last Friday, Schlumberger (NYSE:SLB) announced its results, which, on the whole were not much better than either Halliburton’s or Weatherfords’s. But the stock got a boost of about $6/share, and the climb is continuing today, with SLB up $1.68 at $103.52 at 11:00 EM EST. Schlumberger also announced a $8 billion stock buyback program with its earnings release, and that probably has something to do with its share price jump.

What’s going on? Halliburton got a nice boost when Goldman Sachs raised its rating from Neutral to Buy. On the same day, it lowered Weatherford to Neutral from Buy, and raised Schlumberger. The backstory, though, paints a picture of lower growth in exploratory drilling, even as well completions continue strong.

According to Baker Hughes (NYSE:BHI), U.S. exploratory wells have dropped from 69 YTD in 2007 to 17 YTD in 2008, more than 300%. Exploratory drilling is also at a standstill globally. That can’t last because, as Schlumberger noted in its press release, "current investment levels are insufficient to both stem decline and to explore and develop new reserves and, as a result, we anticipate that the current cycle of exploration and production spending will remain stronger for a longer period than we originally anticipated." That analysis appears to have resonated with the market, and it has decided that SLB is in the best position to turn that analysis into profits.

Schlumberger also saw its shares raised to an Overweight rating today from Morgan Stanley, and we’ve also seen Goldman Sachs reiterate its Buy rating this morning and a raised target to $110.00 over the expectations of winning in new rigs in the 2009 to 2011 period.

The cons are outweighing the pros so far this morning, at least as far as the ETF’s are concerned.  The Oil Services HOLDRs (AMEX: OIH) ETF is down almost 1% at $206.86.

Paul Ausick
April 21, 2008