Halliburton Gets Contract Extension

Houston, Texas-based Halliburton Company (HAL - Analyst Report), one of the largest oilfield service providers in the world, has bagged a two-year contract extension from StatoilHydro (STO - Analyst Report). The estimated value of the contract extension is approximately $450 million.
 
Halliburton had been awarded the first contract in 2006. The initial contract was for a two-year term with further extension options of three two-year periods.
 
Under the terms of the extended contract, Halliburton will provide fluids systems for multiple fields on the Norwegian Continental Shelf. This includes cementing services for 20 rigs and completion fluids for 16 rigs.
 
The contract will involve services from both of Halliburton’s business segments: Completion and Production as well as Drilling and Evaluation.
 
Halliburton is among the top three players in each of the product/service categories it offers and is present in all the major hydrocarbon-producing regions of the world.
 
We view this contract extension as a positive for Halliburton in a gloomy economic environment. While this contract is in the international arena, the company is nevertheless much more exposed to the North American pressure pumping market than any of its large-cap diversified oilfield service peers.
 
The outlook for the North American natural gas market remains on the weaker side. Within this market, Halliburton has a leading position and a strong leverage in the pressure pumping business, neither of which bodes well for the company.      
 
Weak natural gas prices and continued credit-market issues have prompted natural gas producers (E&P companies) to curtail spending plans, significantly affecting the outlook for pressure pumping leaders such as Halliburton. Therefore, we maintain our Sell recommendation.