Halliburton CEO: “Phenomenal” shale opportunities outside North America

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September 6, 2011

HOUSTON (Dow Jones)–Halliburton Co. (HAL) Chief Executive David Lesar said Tuesday there are “fantastic and phenomenal opportunities” for oilfield service companies to expand shale drilling beyond North America, but that growth may come slowly.

“There is a lot to be excited about in the shale plays, but there are obstacles that need to be overcome and that’s good because I don’t think the industry today could serve a number of increasing shale plays outside the U.S.,” Lesar told investors during a webcast presentation in New York.

Halliburton and other oilfield service companies have profited greatly in recent years as North American producers rush to unlock troves of oil and natural gas from deeply buried rock formations, called shales.

Demand for pressure pumping, which enables producers to crack open shales to release oil and gas, has outstripped Halliburton and its competitors’ ability to provide the service, for example. In the last ten years pressure pumping has leap-frogged land drilling, offshore construction and offshore drilling to become the largest segment of the oilfield services industry, Lesar said.

While North America holds an estimated 15% of worldwide shale reserves, it has about 80% of global pressure pumping capacity.

“Even then we cannot keep up with the demand,” Lesar said. “The challenge is going to be getting ramped up to address the shale opportunities outside the U.S.”

Lesar said Australia, Poland and Argentina each have great potential for significant shale development, but that Australia is the only market that currently has the necessary geology, regulatory environment, pricing and infrastructure. Poland, he said, is lacking in oilfield infrastructure and in Argentina, where Halliburton recently completed South America’s first shale well for Apache Corp. (APA), government regulated natural gas prices are too low.

“Shale gas could develop very quickly in Argentina, but only at the right price and we’re not there yet,” Lesar said.

Global demand for natural gas should foster overseas shale development, though. Lesar said Halliburton expects worldwide demand for natural gas to rise 52% by 2030, three times the growth rate of oil demand.

Halliburton also forecasts increasing demand for deep-water drilling services. Lesar said the company is mobilizing for 31 jobs around the world, many in regions new to Halliburton, including Tanzania, Vietnam and Brunei.

Mobilizing for such jobs “doesn’t come cheap,” he said. “The up-front costs will weigh heavily on our margins and have weighed heavily on our Eastern Hemisphere margins, but I can tell you, this investment will pay off in the future.”

Much of the work is being ordered by national oil companies, who are less likely than they have been in the past to share their resources with international oil companies, instead turning to service companies to help them extract their reserves, Lesar said. Four of Halliburton’s top ten customers are now national oil companies, he said.

Lesar also said that Halliburton’s pending purchase of Multi-Chem Group LLC., a deal that was announced earlier Tuesday, will give Halliburton the fourth largest production and completion chemical maker. Expected to close in the fourth quarter, the acquisition will also help Halliburton become less reliant on its peers’ productions.

“It’s been frustrating pumping competitors chemicals through our equipment,” Lesar said.

Terms of the acquisition were not disclosed. Shares of Halliburton recently traded 4.19% lower at $39.80.

-By Ryan Dezember, Dow Jones Newswires


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