Halliburton Stock Is Not Done Climbing After China Partnership Deal

NEW YORK (TheStreet) -- Shares of oil services giant Halliburton (HAL) have performed well for investors. After beginning the year with 40% gains in its trailing 12 months, Halliburton has burned non-believers with year-to-date gains of 42%, outperforming the energy sector's 14% gain.

The stock closed Thursday at $70.35, just a few percentage points away from its 52-week high of $71.94. And the stock charged ahead further Friday, to $70.72 as of 11:45 a.m.

With second-quarter earnings due out Monday, investors want to know whether Halliburton has finally reached its ceiling. From where I sit, I don't believe it has.

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In fact, with Halliburton's recent joint venture with Petrotech (Xinjiang) Engineering, a subsidiary of SPT Energy Group, Halliburton shares are now significantly discounted. The company's long-term growth projections now support a fair value of around $82, or 15% higher.

With this deal, Halliburton immediately becomes more diversified and no longer has to rely on North American production weakness. Although North America has drastically improved, Halliburton relied on 50% of its revenue from North America. That left it too susceptible to macro headwinds. With this deal, the story has now changed.

The new combined entity will be called Xinjiang HDTD Oilfield Services. It will conduct hydraulic fracturing and production enhancement operations to benefit from strong oil and gas reserves in Xinjiang, a Chinese province.

Given Petrotech's efficient upstream capabilities, this presents Halliburton with another revenue stream from exploration and production activities. What's more, Petrotech operated the Tarim oilfield for 20 years -- which minimizes the risk of failure.

But there will be challenges. This deal puts Halliburton toe-to-toe against Weatherford International (WFT), a Switzerland-based oilfield service provider that struck a similar deal with China’s Sinopec Group.

Although larger rival Schlumberger (SLB) has its own joint venture with Cameron International (CAM), Schlumberger may now feel pressured to form a similar partnership to exploit China's willingness to develop unconventional oil reservoirs. Schlumberger has shown it has the technology to do it.

For that matter, Baker Hughes (BHI) shouldn't be far behind, given China's sudden urgency to extract tight oil and shale gas. China is looking to lessen its dependency on coal and duplicate American production success in fracking in areas like the Eagle Ford and Marcellus shale plays.

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