Asbestos Claims Make Halliburton Hazardous

A recent trio of asbestos-related verdicts may be enough to push Halliburton (HAL Quote) into a financial black hole. And, while few other oil service companies have Halliburton's potential level of exposure, the fear of costly litigation could be enough to push investors away from the sector.

Last Wednesday, a Baltimore jury verdict saddled Halliburton with $30 million in additional asbestos liability. While that alone may not seem terribly significant, as $30 million is pocket change for the company, the continued jury verdicts against the company are a real threat. Including the Baltimore case, Halliburton subsidiaries have lost three verdicts in three months, with liability pushing $125 million.

"Thirty million dollars, in the scope of things, is nothing," says Dan Pickering, director of energy research at Simmons & Co., a Houston energy investment firm, and a member of the TSC Energy Roundtable. "It's the data point and what it means that people are reacting to."

Halliburton shares lost 43% of their value Friday to close at $12, as news of the Baltimore verdict made the rounds.

Halliburton Slumps The stock slips on news of the verdict

Asbestos litigation has already forced 25 U.S. companies into bankruptcy. More than 140,000 lawsuits have been filed, and surveys suggest the rate of filings will continue to increase for the next decade. Halliburton faces hundreds of thousands of claims with no way to estimate how many could potentially go to trial.

With such uncertainty and potential liability ahead, some argue predicting the future of Halliburton's shares is next to impossible. "There is too much uncertainty for a correct valuation to be determined," says Jim Wicklund, oil field services analyst at Banc of America Securities.

Halliburton maintains that the trial courts erred, and the company remains confident it will win on appeal. Management continues to say Halliburton's asbestos liability is under control. In fact, in an early Monday conference call, Halliburton management attempted to soothe nerves by reassuring investors that liquidity was not a problem and that they remain unconcerned about large out-of-pocket payments from asbestos liability. But most pundits say that's crazy talk. ...