Shares in Halliburton dropped over 8 per cent on Monday after the oil and gas drilling company said it anticipates moderate growth in the Permian Basin and lower earnings in the upcoming quarter.  

Halliburton shares down over 8 per cent Monday

On Monday, Halliburton shares were down over 8 per cent after the company said it expects moderate growth in the Permian Basin and lower earnings in the upcoming quarter.

The company shares fell even though it reported a 24 per cent year-on-year increase in Halliburton’s revenue in the second quarter, slightly above analysts’ expectations.

According to the company, some of its customers are cutting activity and lowering their rig count because of pipeline bottlenecks in the Permian Basin.  Halliburton’s operations are heavily weighted towards North America and as such, it is vulnerable to the Permian pipeline congestion more so than its rival, Schlumberger.

These pipeline restrictions have meant the local price for crude in the Permian is selling at a discount of almost $15 a barrel versus benchmark prices at Cushing, Oklahoma.

“What the market is trying to discount is the change in earnings estimates and the outlook for North America especially North American land market … as growth in the Permian moderates,” Evercore ISI analyst James West told Reuters.

Consultancy Rystad Energy reported that Halliburton is the largest hydraulic fracturing company in North America as of March.  According to Reuters, the number of drilled but not completed (DUC) wells is growing due to a tightening hydraulic fracturing market and delays in completions until oil prices rise.

Jeff Miller, Halliburton’s Chief Executive says he expects third-quarter results to be similar to those in the second quarter.  He added that Halliburton forecasts a 4 cents per share hit on earnings in the current quarter, due to the slowdown and higher maintenance costs.

“I’m not naive to the math around the off-take issue,” Reuters reports he told an earnings conference call.  Miller added “Even in the Permian, as we’ve described that, that’s a moderation in growth as opposed to a pullback.”

Analysts say investors interpreted the comments to be an admission that production in the Permian is on the cusp of a slowdown with bottlenecks not expected to relax until next year.

Halliburton shares fell 8.3 per cent to $41.53.