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Halliburton
Analyzing Major Impetuses Behind Stock Variations Thereof
By: Ross Hollingsworth
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Table of Contents
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Abstract
This report will be an analysis of the major events and changes within a certain company
that influence the stock performance of said company. Many events can affect a company’s
stock prices. In order to properly explore the fluctuations of a company’s stock price an analysis
of the entire industry should be looked at. For this report, I will be examining a company in the
oil services industry. Companies in this field share many stock influences with companies in
related fields due to similar limitations and externalities.
A major influence on a company’s stock price in this field is the government. Because
drilling for oil, and many of the required processes that go along with it, are detrimental to the
environment, the government must step in and impose staunch regulations. They do this to
appease larger organizations like the EPA, but also to mitigate the effects on the public as well.
This discussion of governmental policies relating to oilfield stock prices also leads into another
major influence; war. We are a warring nation and to fuel our needs, oil is needed. Troop
transport is a big facet of a warring nation’s needs. Because our country is so often at war, we
have to move our troops around. This can give you the idea of how war affects the stock prices
of the companies that supply the fuel for our Humvees, jets, tanks, etc. It is when these wars are
centralized in the Middle East that the effects are magnified. With the Middle East existing as a
hotspot for fossil fuels, this can cause the government to take bold action which leads to even
bigger implications.
Another type of event that can have grievous ramifications on a company’s performance
is a disaster. Natural disasters can create unforeseen obstacles in the extraction and production
of fossil fuels which then affect the company’s stock performance. Manmade disasters can also
influence the same because it creates delays and obstacles that must be overcome before
resuming production. These disaster also can have a very adverse effect on the environment
which can lead to lawsuits. If a company has to deal with the fallout of a major manmade
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disaster, it brings them back from dealing with decisions to further their company in order to
recompense for the disaster.
Introduction
The company that I have chosen for this project and report is Halliburton Company.
Halliburton's fascinating and proud history reveals a continuous focus on innovation and
expansion that began with the company's founder, Erle P. Halliburton. After borrowing a wagon,
a team of mules and a pump, he built a wooden mixing box and started an oil well cementing
business in Duncan, Oklahoma. Today, Halliburton offers the world's broadest array of products,
services and integrated solutions for oil and gas exploration, development and
production. Halliburton is an American multinational corporation. They are one of the world’s
largest oil field services companies, providing many products and services to the global energy
industry. The company serves the upstream oil and natural gas industry throughout the lifecycle
of the reservoir - from locating hydrocarbons and managing geological data, to drilling and
formation evaluation, well construction and completion, and optimizing production through the
life of the field. Founded in 1919, Halliburton employs over 75000 people, represents more than
140 nationalities, and is headquartered in Houston Texas. It also has operations in over 80
countries.
I am interested in this company because my uncle is in the petroleum industry working
for Baker Hughes, which was recently bought out by Halliburton. He seemed that he was
challenged but yet rewarded by this company. He had great opportunities with his company,
including offshore or onshore drilling, accommodations for travelling the world and working in
new places, and advancement within the company. He was very excited and satisfied with his
work and enjoyed the rewards that were offered. Also, there was a Halliburton building in a city
close to my hometown. One summer I inquired after a job with them hoping to gain valuable
experience that I could apply down the road. I hope that my research into this company through
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this report will cultivate my connection with this company so that maybe one day I can work
with my uncle.
Halliburton operates in two divisions; Drilling and Evaluation, and Completion and
Production. The Drilling and Evaluation Division, which consists of six product service lines
(PSLs), provides field and reservoir modeling, drilling, evaluation and precise wellbore
placement solutions that enable our customers to model, measure and optimize well construction
activities. This segment consists of Baroid, Drill Bits and Services, Landmark Software and
Services, Sperry Drilling, Testing and Subsea, and Wireline and Perforating. The Completion
and Production Division, consisting of six PSLs, delivers cementing, stimulation, well
intervention, pressure control, pipeline and process, and completion services. This segment
consists of Artificial Lift, Production Solutions, Cementing, Completion Tools, Multi-Chem and
Production Enhancement. PSLs are primarily responsible and accountable for strategy,
technology development, process development, people development and capital allocation.
I am interested in this company because my uncle is in the petroleum industry working
for Baker Hughes, which was recently bought out by Halliburton. He seemed that he was
challenged but yet rewarded by this company. He had great opportunities with his company,
including offshore or onshore drilling, accommodations for travelling the world and working in
new places, and advancement within the company. He was very excited and satisfied with his
work and enjoyed the rewards that were offered. Also, there was a Halliburton building in a city
close to my hometown. One summer I inquired after a job with them hoping to gain valuable
experience that I could apply down the road. I hope that my research into this company through
this report will cultivate my connection with this company so that maybe one day I can work
with my uncle.
In regards to this report, I was able to contact my uncle through email. I
explained this project and asked for any insight he could provide with respect to any events, or
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factors that usually accompany a change in stock prices for Halliburton. He and I came from
similar beginnings. This coupled with our similar work ethic gives me a very hopeful feeling
about my future in this field. I used much of his wisdom, shared through email, as a foundation
for my research.
Discussion part 1
The stock for Halliburton is being exchanged in the New York Stock
Exchange. Halliburton grew its total revenue to a record of $32.9 billion for the full year 2014,
an increase of $3.5 billion, or 12 percent, from 2013. The company suffered a hit when it was
uncovered that Halliburton, Transocean and BP, not solely BP, should assume responsibility for
the Deepwater Horizon explosion and subsequent oil spill that ravaged the Gulf Coast in 2010.
Halliburton and Transocean were charged with negligence but not near the extent of which BP
was charged with. Events like this, referenced in the initial section can have a big effect on the
stock performance.
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Halliburton stock prices over last two years
80
70
60
50
40
Halliburton stock prices
30
20
10
0
5/6/2013 11/22/2013 6/10/2014 12/27/2014 7/15/2015 1/31/2016
There are many events, happenings, conflicts, regulation, resolutions, and deals that can
result in a change in the stock of a company. For the rest of the first part of the discussion I will
detail some lesser influences of the stock market. Then, in part two of the discussion, I will
analyze ten major events that have affected Halliburton’s stock performance over the years.
Stock markets can be volatile, and the reasons particular stocks rise and fall can be
complex. More often than not, stock prices are affected by a number of factors and events, some
of which influence stock prices directly and others that do so indirectly. According to stock
market guru Peter Lynch, an important point to remember when investing is that there is a
company behind every stock and a reason why companies--and their stocks--perform the way
they do.
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Liquidity is an important and sometimes under-appreciated factor. It refers to how much
investor interest and attention a specific stock has. Wal-Mart's stock is highly liquid and
therefore highly responsive to material news; the average small-cap company is less so. Trading
volume is not only a proxy for liquidity, but it is also a function of corporate communications
(that is, the degree to which the company is getting attention from the investor community).
Large-cap stocks have high liquidity: they are well followed and heavily transacted. Many smallcap stocks suffer from an almost permanent "liquidity discount" because they simply are not on
investors' radar screens.
Company stock prices and the stock market in general can be affected by world events
such as war and civil unrest, natural disasters and terrorism. These influences can be direct and
indirect, and they often occur in chain reactions. The social uncertainty and fear generated by the
terrorist attacks on Sept. 11, 2001, affected markets directly as they caused many investors in the
United States to trade less and to focus on stocks and bonds with less risk. An example of an
indirect influence on markets is the announcement of a new military venture by a country in
response to the outbreak of civil unrest or conflict abroad. This announcement likely would
cause the price of the stocks of military equipment and weapons manufacturers to rise due to an
expected increase in defense contracts, which in turn can raise the value of stocks for companies
that supply military equipment parts and technology. It likely would raise the demand for, and
price of, natural resources used to make these parts, which would raise the price of stocks
representing particular mining and natural resource processing companies.
One of the more predictable influences of the stock market are periodic adjustments of
interest rates by the U.S. Federal Reserve to combat inflation. When interest rates are raised,
many investors sell or trade their higher risk stocks for government-backed securities such as
bonds to take advantage of the higher interest rates they yield and to ensure that their investments
are protected.
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Stocks and the stock market also can be affected by hype about a company or the release
of new products or services. Many people and organizations have an interest in promoting
particular stocks and industries to increase the value of their own shares and profits, and positive
financial reports and stock market newsletters, Internet blogs, press releases and news reports
can build high expectations for the performance of companies, which will raise the price of their
stocks. This can occur even when the hype has no foundation in truth; investors are wise to
consider people’s reaction to hype rather than analyze the merits of the positive promotion.
Hype (and its opposite) can be advanced by respected stock market authorities such as Warren
Buffet, Peter Lynch and hedge fund investor and financial speculator George Soros; such is the
respect given to these individual’s skill and past success that they sometimes can affect the
movement of markets by simply suggesting that developments might occur.
Foreign currency rates have a direct impact on the price and value of stocks in foreign
countries, and changes in exchange rates will increase or decrease the cost of doing business in a
country, which will affect the price of stocks of companies doing business abroad. While longterm movements in exchange rates are affected by fundamental market forces of supply and
demand and purchase price parity, short-term movements are driven by news, events and futures
trading and are difficult to predict.
Developments that can occur within companies will affect the price of its stock, including
mergers and acquisitions, earnings reports, the suspension of dividends, the development or
approval of a new innovative product, the hiring or firing of company executives and allegations
of fraud or negligence. Stock price movements will be most drastic when these internal
developments are unexpected.
Discussion Part 2
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Halliburton is an oilfield company and oilfield companies require much governmental
regulation. In my opinion, the largest and most influential effects on the stock of a company like
Halliburton come from the realm of politics and government. Mainly to protect the rights of
different people, the government imposes copious regulation on Oilfield giants like this one.
This can effect which projects can be undertaken and to which degree. An example of this is
how Halliburton was involved in an Asbestos lawsuit. Anytime that a lot of people are adversely
affected by a company’s mistakes, the government is going to get involved and impose the rights
of all of the people and organizations involved.
1. Halliburton Pays Dearly but Finally Escapes Cheney's Asbestos Mess (-43%)
In 2001, Halliburton was involved in an asbestos lawsuit which saw the stock
price fall 43% from $23.37 in March 2001, to $8.25 in December of 2001. Dick
Cheney was the person who arranged the buyout of Dresser industries. Along
with the company came its asbestos problem that Halliburton inherited.
2. Judge accepts Halliburton’s plea (-.1%)
Halliburton agreed in July to plead guilty to destroying evidence in connection
with the 2010 Deepwater Horizon disaster. Halliburton, which did cement work at
the Macondo well, was accused of deleting the results of computer simulations
comparing components of the doomed well's casing during an internal review of
the accident. An explosion at the rig claimed 11 lives and triggered the worst
offshore oil spill in the U.S. Shares of Halliburton declined less than 0.1% on
Thursday.
Also, when analyzing Halliburton’s presence in Iraq, the government could be blamed for
the fluctuation of the company’s stock price. Over the first five years of occupation, US
government contract work has brought Halliburton more than over $20 billion--a huge increase
over the meager $1.2 billion it was paid for all government work a decade prior (1991-1995).
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Another factor that should be taken into account is the switching of the leadership of a
company. With a new person inducted into a leadership position in a company, the performance
of the company, along with the ideals of the overall company is subject to change. New people
bring new ideas of how to run the company which can affect the direction and scope of the
company.
3. Halliburton profit up 20%, names new president(+20%)
Halliburton Co. gave Chief Operating Officer Jeff Miller the added title of
president and said he would join the oil-field services giant's board as it beefs up
its executive ranks.
The company, which also reported its second-quarter profit rose 20%, said Mr.
Miller will complement the leadership of Chief Executive Dave Lesar, who was
60 years old as of April's proxy filing.
The equity market can have an effect on a company’s stock prices as well.
4. Energy stocks fall back as equities move down(+1.3%)
NEW YORK (MarketWatch) -- Energy stocks fell back with the broad equities
market on Thursday, with Diamond Offshore Drilling Inc. DO, -3.98% down
1.9%, First Solar Inc. FSLR, -4.22% off by 1.4% and Phillips 66 PSX, 1.42% down by about 1.6%. On the up side, Halliburton Co. HAL, -1.00% rose
1.3% after Bernstein Research upgraded the oil service firm to outperform.
When a company is absorbed by another larger company, the buying and bigger company
profits. Otherwise they wouldn’t go through with it. This is readily apparent to me through
communicating with my uncle. He was originally a part of Baker Hughes, but as it is absorbed
by Halliburton, his team is shrinking from twenty one to eleven. With a merger the buying
company gets a percentage of the other company’s assets and gives up a price that is settled
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between the two companies. This usually leads to a boost in stock performance for the buying
company, as seen in the fifth and sixth records.
5. Baker Hughes submits to Halliburton(+~12%)
Management announced an agreement for Halliburton to acquire Baker Hughes
for $34.6 billion in stock and cash. Shareholders of the target company will
receive 1.12 Halliburton shares and $19 in cash for each Baker Hughes share. The
deal is valued at $78.62 a share, a 41% premium to Baker Hughes’ stock price on
Oct. 10 2014, the day before negotiations began. This doesn’t necessarily deign a
rise or fall in Halliburton Stock, but rather a switching of stocks from Baker
Hughes to Halliburton which will mean a 12% larger investment, depending on
the investor’s original investment in Baker Hughes.
6. Halliburton buys Dresser Industries. (+14%)
Halliburton Co. agreed to acquire rival energy services company, Dresser
Industries Inc., in a $7.7-billion stock swap that would create the world's largest
oil services concern. Based on the terms of the agreement, Dresser shareholders
will receive one Halliburton share for each share they own, valuing Dresser stock
at $44 apiece. That represents a 14 percent premium to Wednesday's closing price
(DI) of 38-11/16. Halliburton (HAL) closed at 44.
Disasters, natural or otherwise are responsible for substantial swings in the stock price.
Money then needs to be spent on repairs, lawsuits, environmental impacts, among a slew of other
expenses. The BP oil spill aboard the Deepwater Horizon was also partially the fault of
Halliburton, emitting a decrease in stock price.
7. Deepwater Horizon(-39.2%)
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Halliburton is partially responsible for the massive oil spill in the gulf with most
of the blame going to BP. Stock prices go down in response. Halliburton was in
charge of the cement job on the oil well.
Another major determinant of Halliburton’s stock price is international oil prices. There
is a possibility of a much sharper, V-shaped recovery in global oil prices if the growth in demand
for oil products picks up significantly on the back of lower oil prices or increased economic
activity in China. Oil production could also decline because of a sharp and sustained slowdown
in drilling activity. The U.S. EIA reports that oil production from the seven major U.S. shale
plays is expected to fall by a total of 86,000 barrels a day in June, with production from the
prolific Eagle Ford and Bakken shales taking the largest cuts. If the cuts continue going forward,
it could help to bolster oil prices. Additionally, if the OPEC, which accounts for about a third of
global crude oil output, decides to change its current stance and reduces its production, this
would also have a very positive impact on oil prices, providing significant tailwinds for oilfield
services stocks.
8. Halliburton Stock responds to oil prices.(+2.1%)
Halliburton is in the process of acquiring rival oil-field service company Baker
HughesInc. Customers of both companies have cut their planned spending on
drilling and fracking this year as crude-oil prices languish in the $50-a-barrel
range. Clients also have asked for significant price reductions for the types of
services that Halliburton and its peers provide. Halliburton shares, down 25%
over the past year, rose 2.1% to $47.85 on the New York Stock Exchange as the
company beat analysts’ expectations. Excluding special charges, first-quarter
profit was 49 cents a share. Revenue fell 4% to $7.1 billion. Analysts polled by
Thomson Reuters were expecting earnings of 37 cents a share and revenue of
$6.96 billion.
9. Halliburton Stock responds to fluctuating oil prices. (-12.7%)
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Firms linked to the oil industry are expected to suffer from the more than 50
percent drop in crude prices since mid-2014. The energy sector is the biggest and
only laggard this quarter, according to Estimize. As global crude oil prices
have dropped more than 40 percent since June, oil, gas and consumable fuels
companies are expected to take the biggest hit during the fourth quarter. The
energy sector includes Schlumberger Limited, the world's largest oilfield services
company, and Halliburton Company, the world’s second largest oilfield services
provider. Profits and revenues from the energy sector are estimated to be down
16.6 percent and 12.7 percent, respectively.
To see the impact of war, let’s first examine the most recent war that started on American
soil. The impression that many people have is that the recession of the early 2000s started with
the terror attacks on September 11, 2001. The reality is that stocks were already on a downward
trend when September 11th happened. Yes stocks dropped sharply in the 10 days following that
awful event, but once America grasped the reality of the situation, stocks rebounded, recovering
the losses directly related to the shock of that event. There is a similar pattern for each conflict
involving the United States. “In 14 shocks dating (back) to the attack on Pearl Harbor in
December 1941, the median one-day decline has been 2.4%. The shocks, which also include the
September 11th terror attacks and the 1962 Cuban missile crisis, lasted eight days, with total
losses of 7.4%…The market recouped its losses 14 days later.” Similar patterns of decline
occurred during several Middle Eastern conflicts such as Desert Storm in 1991, the Iraq War in
2003, and the Syrian Conflict in 2011. Leading up to each of these events, the market dropped,
but recovery happened shortly thereafter. War creates major variations in the performance of a
company like Halliburton as well. Dick Cheney was running Halliburton, until he went back to
Washington. Having one man in this position in this company and then taking a leadership role
in the government creates a stronger influence of war to the company’s performance. We are a
warring nation, and when Bush and Cheney were in office, oil prices were up, service company
revenue was up, and so are stock prices. Through this lens, war may be one of the best things for
Halliburton’s stock prices, especially when the war is in a global hotspot for oil like the Middle
East.
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10. Halliburton flourishes under Cheney during Desert Storm.(+108%)
The stock price of Halliburton rose from about $12 a share in 1996, to a high of
$25, before plunging to about $7 a share in 2002.
http://www.marketwatch.com/investing/stock/hal
http://smedleyfinancial.com/wp/impact-of-war-on-stock-markets/
http://smallbusiness.chron.com/five-factors-events-affect-stock-market-3384.html