Halliburton's Road Map for the Future of Oil

NEW YORK ( TheStreet) -- Halliburton's ( HAL) second-quarter results have provided some insights into the major themes of oil going forward and some of the huge opportunities in the oil services companies.

So, let's take a quick look at this multi-national, diverse mega-cap driller's results and see what they say.

Halliburton is very diverse and involved in all aspects of oil, natural gas and liquids development and extraction. But the oil services world tends to lump its products and services into two broad categories: Drilling and Evaluation, the pre-extraction phases of a well's life, and Completion and Production, which involves the actual extraction and continuing servicing of a producing project.

In addition, Halliburton separates its operations in both of these areas that occur in North America and Internationally. By referring to these four categories of operations, we get a strong indication of where much of the profitability the company currently enjoys is coming from, but maybe more importantly, where it might come from in the future.

To cut to the chase, Halliburton's are up, and some would think spectacularly so. From a consensus earnings estimate of $0.73 a share, Halliburton reported earning $0.81 a share, an already nice beat. But it was where all that money was earned that told the most important story, not just for Halliburton, but for the oil services sector going forward.

>>For upcoming earnings and estimates, see our Earnings Calendar.

That's because much of the earnings beat came from North American operations, where the margins -- a quick measure of profitability -- were up 29%, while International margins were only up a bit less than 10%. This is a clear indication that "alternative" drilling methods, including the environmentally controversial horizontal drilling technologies are largely driving the growth and future profitability of oil services companies - not just Halliburton.

It is also clear that new finds in North America that were originally focused for natural gas are being reassessed quickly and aggressively for crude oil and liquids, where not only is there less pushback from environmental groups, but where there are far more compelling product prices.

None of this surprises anyone -- not the analysts following oil services or the traders trying to figure out where oil and natural gas prices are going. North America is enjoying a new oil boom based on new pressure pumping techniques, most obviously in the Bakken and in Eagle Ford, but soon also to come to other shale and oil sands areas so far still untouched. That the United States has found such worthwhile reserves to pursue, despite being fourteenth on the list of proven oil reserves globally should make a light bulb go on at 250 watts over the heads of investors: If there is a shortage to be found in the medium term for oil, it looks far more likely not to come from oil reserves as opposed to oil drillers.

Bingo! We're on the cusp of a new focus for oil extraction and seeing only the first results of that focus in what is a very small fraction of a potentially large global pie. It won't take long before these technologies being used successfully and profitably in North America are being demanded by the Venezuelans, Russians and even, yes, the Saudis. This is a long-term thesis, but clearly outlined by the Halliburton results - and could be confirmed by the Schlumberger ( SLB) results on Friday and the Baker-Hughes ( BHI) results on Monday.

So, who should you buy? While there is further growth to be had in North America, the opportunity is clearly left by the relatively tiny margins being extracted internationally so far. You should want the most internationally exposed of the oil services companies which obviously includes Halliburton and Schlumberger, but also the Swiss-based Weatherford ( WFT).

I think these quarterly results are the beginning of a strong trend that could lead over the next several years to huge growth for the oil services sector and concurrent rises in their share prices. Now is a great time to get ahead of this trend.

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At the time of publication, Dicker owned Weatherford.

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