Investors are used to seeing low oil prices as good news. But American companies dominate the global oil patch. When they get sick, the U.S. economy catches cold.
Right now, Halliburton (NYSE:HAL) is sick. Less than two years ago the oilfield services giant was worth $46 billion. With its latest quarterly report, and its $1.7 billion loss, the market capitalization is down to $21 billion.
Oil men love to play with language. In this case, Halliburton said, the losses came about because the North American market “softened.”
Look, the bulls say, Halliburton beat estimates. These are just write-offs. But last month analysts were only predicting a “year-over-year decline in earnings.”
Steady as she goes, say the bulls. Investors should not be buying it.
The Problem
U.S. frackers are going out of business, reduced to begging for political support. Halliburton and other oilfield companies are laying off employees and scrapping equipment.
Oil patch veterans are reassuring all who will listen that this is just another boom-and-bust cycle. It’s not. The costs for renewable energy, which are already below those for fossil fuels, continue to decline. The cheapest form of renewable energy is also efficiency. Efficiency keeps rising, thanks to LED light bulbs, lower-power computers, insulation and a host of other innovations. That’s why the U.S. electrical grid has the power to take electric cars. They need the work.
Frackers and oilfield service outfits just lose investors’ money. What about all the national oil companies? What about Saudi Aramco? About Russia, Nigeria, Angola and other oil producing countries? And what about the U.S. dollar, since oil is priced in dollars?
When the reality hits, the results could be catastrophic.
Hiding From Reality
Oil producers have been hiding from the new reality by storing crude. Approximately 100 million barrels are stored at Cushing, Oklahoma alone. But we’re out of room to store natural gas. Flaring — the controlled burning of natural gas — is at record levels. Even the prospect of a war in Libya isn’t raising prices thanks to increased storage.
The hope of oilfield bulls is that the recent trading range of $52-$65 per barrel will hold, or prices will quickly bounce back. That’s what happened after the “tech wreck” of December 2018. Those lows have been tested three times in the last year. Each time they held.
But technology keeps bringing new “elephant” discoveries to the market. More are expected in 2020. This is the “good news” that kept Halliburton from missing its lowered estimates.
The result was that some analysts actually raised their ratings on Halliburton, believing the new technologies will bring profits. After all, Halliburton’s 18 cent dividend currently yields over 3%.
The Bottom Line on Halliburton Stock
Oil companies have always walked away from losses. They don’t pay their taxes. They don’t clean up their messes, even when the waste is radioactive.
With most car companies preparing to roll out electrics in the next few years, the political pushback against oil, and companies like Halliburton, will only grow.
Renewable energy and climate change are long-term trends. A lot of what the oil patch now calls “assets” will be stranded, written off as Halliburton wrote down its fracking equipment last quarter.
The oil industry pleads poverty when it fails and demands protection when it succeeds. For a century this has worked. But can it continue to work as demand continues to decline, if oil is no longer seen as essential to growth?
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
