Press Release: Fitch Affirms Halliburton Co.'s IDR at 'A-'; Outlook Stable
11:28a ET July 24, 2014 (Dow Jones) Print
Press Release: Fitch Affirms Halliburton Co.'s IDR at 'A-'; Outlook Stable
The following is a press release from Fitch Ratings:
Fitch Ratings-Chicago-24 July 2014: Fitch Ratings has affirmed Halliburton Company's (Halliburton; NYSE: HAL) long-term Issuer Default Rating (IDR) and senior unsecured ratings at 'A-'. The company's short-term ratings were affirmed at 'F2'. The Rating Outlook remains Stable.
Approximately $7.8 billion of debt is affected by today's rating action. A full list of rating actions follows at the end of this release.
KEY RATING DRIVERS
Halliburton's ratings consider its leading position in the oil & gas services sector, positive near-term trends for U.S. service providers (49% of consolidated revenues is U.S.-based for the year ended Dec. 31, 2013), strengthening international operations, favorable medium-term outlook for offshore service providers, and manageable current and projected leverage profile (Fitch calculated latest 12 month [LTM] debt/EBITDA of 1.3x as of March 31, 2014; Fitch base case forecasts, excluding any Macondo payments, improvement to under 1.1x in 2015). These considerations are offset by the possibility for efficiency- and overcapacity-driven U.S. onshore market weakness, softening offshore market over the near term, heightened execution and political risk across some international markets, increased focus on returning cash to shareholders, and Macondo litigation uncertainty.
MIXED, POSITIVE NEAR-TERM TRENDS
North America was challenged in 2013 by lower activity levels and weak pricing power. However, the company is experiencing a rebound in U.S. activity with a large proportion of idle equipment coming back online during the first half of 2014, though pricing improvements remain elusive. Management is encouraged by the expanding service intensity levels in the U.S. with a trend to longer laterals, increased stage density, and rising volumes per stage. Some evidence for improvement is provided by the realization of regional pressure pumping price increases (e.g., Permian and Bakken) and limited new capacity coming online. Fitch assumes modest additional activity growth with continued pricing power weakness over the near term primarily due to overcapacity in the pressure pumping market.
The international market is mixed with the Middle East exhibiting positive trends as overall rig counts increase, while Latin America remains stagnant mainly due to Petrobras delays. Fitch notes that political events internationally (e.g., Russia, Iraq, Venezuela, etc.) have, to this point, had minimal impact on financial results. These regions represent a relatively small proportion, less than 5% each, of consolidated revenues. Fitch anticipates that Latin America (roughly 15% of consolidated revenues) will remain a near-term headwind, while other international regions will generally continue to experience growth. Petrobras and its planned five-year, $220 billion capital budget has been slow to ramp-up and execution remains a challenge. Market sentiment is that Petrobras activity will pick up in late-2015/early-2016, which should provide a boost to Halliburton's results.
Fitch believes that improvements in U.S. activity and Eastern Hemisphere growth will more than compensate for any Latin American weakness over the near term. Management indicated that it expects operating margins to continue to improve throughout 2014 with a cumulative 200 basis points (bps) improvement and multi-year 'normalized' target of over 20%. Further, management believes international unconventional, mature field, and deepwater projects will provide growth opportunities longer term. Fitch assumes steady, mid-single digit consolidated revenue growth and some margin improvements over the short term with a bump in results beginning in 2016. This coincides with the market's expectation for a ramp-up in Brazil activity.
PBR,short term,very bad!!! May be $15/15.5
regards
