*Update* Holding On for Dear Life at Halliburton

The oil-services firm met expectations while feeling the pinch in oil prices and drilling.
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Halliburton

(HAL) - Get Report

is feeling the squeeze of low oil prices and reduced oil-field activity.

The Dallas-based oil-service company reported net income of $90 million, or 20 cents per share, before special charges, on revenues of $4.3 billion. The results were in line with expectations. Including the previously announced charges, the company's net income was $66 million, or 15 cents per share. In the year ago period, HAL posted net income of $257 million, or 58 cents per share, on revenues of $4.5 billion.

Dick Cheney, Halliburton's chief executive officer, noted in a statement the difficult operating environment for the oil-services industry. "The outlook has changed dramatically since we closed the merger with

Dresser

on Oct. 1, 1998. Then we expressed the goal of being able to achieve double-digit growth in earnings 1999 over 1998. Given the rate of today's market, it's pretty clear that is not going to happen. Like many in the industry, however, I remain optimistic about the long-term outlook for our industry and for Halliburton in particular. As previously announced, we are moving aggressively to right size our business for the market that is out there. We will continue to implement the merger with Dresser, which looks better every day as we deal with today's environment."

Halliburton shares fell 1 1/2, or 4.7%, to 30 1/2.

For the year, Halliburton's net income before special charges was $731 million, or $167 per share, on revenues of $17.4 billion. In 1997, the company posted net income of $772.4 million, or $1.77 per share, on revenues of $16.3 billion.

The following story was posted at 9 a.m. EST Monday:

Hoping Against Hope with Halliburton

Analysts and investors will dig through

Halliburton's

(HAL) - Get Report

fourth-quarter earnings report today not so much to see what happened but to find clues about what will happen next.

The Dallas-based oil-services company warned last month it wouldn't meet analysts' fourth-quarter earnings expectations, saying it would take a $24 million charge to lay off 2,750 workers. Halliburton said fourth-quarter earnings after the charge would amount to 14 to 16 cents a diluted share, down sharply from 58 cents a share a year earlier and far short of

First Call's

consensus estimate at the time of 36 cents. (The consensus dropped to 20 cents after the Dec. 28 press release.)

So now most observers expect the bad news is out. Instead, analysts and investors will look to the earnings release for guidance on the future. And the tired refrain for the oil-services industry is that future earnings hinge on the fortunes of oil producers, which in turn look to crude-oil prices to determine spending levels.

Investors are well aware of the oil-services industry's pricing problems and the declines in worldwide rig activity, says Cary Robinson, an analyst at Halliburton shareholder

American Express Financial

in Minneapolis: "What they don't know is what will happen going forward in terms of the business."

Investors took a comment Thursday by Eaun Baird,

Schlumberger's

(SLB) - Get Report

chairman, as bullish, Robinson says, and sent the company's shares up 3.2%. In an earnings

release, Baird said he saw higher crude demand from Asia leading to higher oil prices and increased oilfield service activity by early 2000.

But for now, oil-services companies are focusing on cutting costs.

Bill Herbert, head of oil-services research at investment bank

Howard Weil Labouisse & Friedrichs

in Houston, expects that Halliburton executives will talk about managing the company's cash and focusing on revenue per employee. In short, they'll talk about cutting workers, which could keep revenue per employee at least flat as actual revenue falls. (Howard Weil hasn't performed underwriting for Halliburton.) Halliburton already has announced layoffs totaling nearly 11,000 workers, or about 11% of its workforce, for reasons including depressed oil prices and the need to consolidate recent acquisition

Dresser Industries

.

Service companies are now much more willing to cut their workforces in an attempt to maintain profitability than they have during past crude-price slides, says Jim Wicklund, who follows the sector at

Dain Rauscher Wessels

in Dallas. Dain has not done any underwriting for Halliburton.

Halliburton already has acknowledged that its projection of 10% to 15% earnings growth over the next two years was too aggressive, Herbert says. Oil company spending cuts will basically shut down the upstream oil sector, which finds and lifts oil and gas from the ground, he explains. He estimates Halliburton will earn $1.25 in 1999, 20 cents below the consensus estimate of $1.45. The 1998 consensus estimate is $1.65.

"I'm expecting a contraction in earnings across the board for oil service companies," he says. Halliburton will feel it especially in its energy-services unit, which includes services such as pressure pumping, well completion systems, drilling fluid systems and well-logging systems.

But he is confident Halliburton is on track to meet its goal of saving $250 million a year after its combination with Dresser, which closed in September.

Meanwhile, the fourth quarter will include an after-tax charge of $24 million, or 5 cents per share, on the job cuts, and about $60 million in losses from international projects.

Losses at Halliburton's

Kellogg-Brown & Root

unit, part of its engineering-and-construction division, worry some analysts. Engineering and construction accounted for 32% of total revenue for 1998's first nine months, and Brown & Root accounts for the lion's share of the division's profit. Losses in the fourth quarter and a continuing price squeeze may spell trouble for margin improvement in future quarters.