Halliburton Worth $46 Despite Nat Gas Glut

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( Trefis) -- The natural gas glut in the U.S. could send prices down further as excess production overwhelms the country's underground storage capacity. According to analysts, supply will continue to outpace demand, though the rig count directed at gas wells is beginning to fall. Some even predict that gas prices could fall even further from their present lows of around $2.08/Mcf (or thousand cubic feet of gas), to around $1/Mcf, for a brief period of time. The changing dynamics of the natural gas market could have an impact on the North American earnings of oilfield services provider Halliburton ( HAL) and competitors like Schlumberger ( SLB) as they are forced to realign their services.

We have a $46 price estimate for Halliburton, which is at a 40% premium to its current market price. Click here for our full analysis of Halliburton.

Pricing Pressure

Competitor Baker Hughes ( BHI) released a statement last week that its margins in the North American market could fall by a few percentage points in first-quarter 2012, vs. the last quarter, due to logistical issues and falling utilization. A concentration of industry capacity in liquid-rich plays is also putting pressure on pricing . In addition, since liquids production is almost always associated with gas, the oversupply is expected to continue in the natural gas market.

Halliburton has capitalized on the shale boom in the U.S. over the past few years to improve revenue as well as profit margins. However, the success of the industry in unlocking gas reserves has directly contributed to the present supply glut. The mild winter further exacerbated the situation, bringing prices down to their lowest levels of the decade, prompting some producers to announce production cuts.

Some analysts estimate that at present levels of production and consumption, storage facilities in the U.S. could be full by October. With production from existing wells remaining strong, companies will be forced to take steps to slow output from wells or cap some of them.

While low prices have spurred demand from power plants and other users, the glut is expected to continue. The present situation could impact the overall exploration and production budget of gas producers in North America, resulting in lower-than-expected growth for Halliburton's revenue drivers in the region.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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