Rigs and oil
Oil rig count is well off its June 2009 low of 179, now at 1,357, but is also off its high of 1,432 in August 2012. As hydraulic fracking continues in the Midwest, Texas, and the Northeast, US oil production will hit 10 million BPD by 2020.
As US oil production goes up, so will the rig count. Combined with stabilizing natural gas rigs as natural gas prices rise, Credit Suisse’s projections for growth this year seem reasonable. A stabilizing or growing natural gas rig count coupled with a growing oil rig count with help push Halliburton Company (NYSE:HAL)‘s margins back up to the mid-twenties.
Productivity concerns
As companies like Kodiak Oil & Gas Corp (USA) (NYSE:KOG) become more productive, they require less of Halliburton’s services as they use multi-pad drilling. Multi-pad drilling is so effective that it decreased Kodiak Oil & Gas Corp (USA) (NYSE:KOG)‘s time from spud to drilling from 35 days to 20-25 days.
Kodiak Oil & Gas Corp (USA) (NYSE:KOG) is a small cap E&P oil company that needs to save as much money as it can. This increase in productivity had led Kodiak to become profitable, grow its EPS by 1,125% year-over-year, and it is estimated to grow its EPS by 50% in the long term, and it only trades at a PE of 17.9. I am bullish on Kodiak, as it is part of the engine driving the energy boom.
Fracking
Halliburton controls 18% of the fracking market in the US, and 87% of all hydraulic fracking spending is in North America. In 2011, 16,000 wells were fracked, and that increased to (an estimated) 19,000 in 2012.
In 2013, at least 21,850 more wells will need to be fracked based on my estimates on past growth and future potential. In 2011, there was 33% growth in the number of wells fracked. That came down to 19% in 2012, with international growth coming in at 63%. If there was 15% growth in 2013, that would mean 21,850 wells would need to be fracked in 2013.
Final thoughts
Halliburton trades at a low PE of 14 and is expected to increase its EPS by 30% this year and 16% in the long run as its margins expand. Its operating margin in the latest quarter was 13.5%, and that will rise up to at least 17%-18% by the end of 2013. With rising margins and rising demand, Halliburton Company (NYSE:HAL) is well positioned to take advantage of the US energy boom on both the oil and natural gas front. A stabilizing natural gas rig count (due to rising prices) is what Halliburton really needs, and with prices rising fast, that seems reasonable by the end of 2013. I am bullish on Halliburton and Kodiak.
Callum Turcan has no position in any stocks mentioned. The Motley Fool recommends Halliburton.
