United States Changing Energy Policy and Halliburton’s Growth Potential
Trump promised “trillions in new wealth” and a “flood of new jobs” by changing the united states energy policy which can propel the Halliburton’s growth.
In his “An America First Energy Plan“, Trump accused Obama administration putting massive new bureaucratic and political barriers against exploitation of national fossil resources.
In May 2016, he stated:
“Oil and natural gas production is up significantly in the last decade. Our oil imports have been cut in half.
But all this occurred in spite of massive new bureaucratic and political barriers.“
Trump sees the exploration of national gas and oil resources as an opportunity to create “great energy wealth” accompanied by higher wages and lower unemployment. He has very harshly criticized Obama administration about preventing oil and natural gas production in America:
“At the same time President Obama lifts economic sanctions on Iran, he imposes economic sanctions on America. He has allowed this country to hit the lowest oil rig count since 1999, producing thousands of layoffs.”
The Goals of Trump’s “An America First Energy Plan“:
- American energy dominance will be declared a strategic economic and foreign policy goal of the United States.
- America has 1.5 times as much oil as the combined proven resources of all OPEC countries; we have more Natural Gas than Russia, Iran, Qatar and Saudi Arabia Combined; we have three times more coal than Russia. Our total untapped oil and gas reserves on federal lands equal an estimated $50 trillion.
- We will become, and stay, totally independent of any need to import energy from the OPEC cartel or any nations hostile to our interests.
- At the same time, we will work with our Gulf allies to develop a positive energy relationship as part of our anti-terrorism strategy.
- We will use the revenues from energy production to rebuild our roads, schools, bridges and public infrastructure. Cheaper energy will also boost American agriculture.
- We will get the bureaucracy out of the way of innovation, so we can pursue all forms of energy. This includes renewable energies and the technologies of the future. It includes nuclear, wind and solar energy – but not to the exclusion of other energy. The government should not pick winners and losers. Instead, it should remove obstacles to exploration. Any market has ups and downs, but lifting these draconian barriers will ensure that we are no longer at the mercy of global markets.
Trump accuses Hillary’s environmental agenda to be a corrupt plan to enrich her friends and to his opinion, the environmental problems pointed by Hillary, such as global warming and climate change, are “phony” and “hoax of china’s government”. So, he promised to withdraw paris agreement and stop payments to United Nation’s global warming programmes.
Trump already signed an executive order nullifying Obama administration-climate change efforts, and directed the EPA to begin the process of withdrawing from the Clean Power Plan (CPP).
The planned “border adjustment tax” (BAT) can also boost the domestic oil and gas production by applying a tax of 20% on imported foreign oil and gas. In this case, US refiners would then bid up the price of domestic US crude until it neared the taxed price of imported barrels. Higher US crude oil prices mean exploring for more domestic oil and increasing US production.
Halliburton’s main revenue (43%) comes from north america, which means the company will benefit handsomely from increasing domestic oil and gas production. Companies revenue depends heavily on exploration activity and has strong correlation with Rig count.
U.S. Land Rig Count from Halliburton’s annual report 2016
After sharp decline of oil prices in late 2015, rig counts dramatically dropped from 1600 (Sep. 2015) to 315 (may 2016). Because of recovering oil prices, the count began to rise again:
“The industry saw unprecedented declines in rig count until it reached the bottom of the cycle at the end of the second quarter. From there, we managed a steady growth in rig count and activity, which allowed us to increase our utilization and return to profitability by the fourth quarter.” Halliburton’s annual report 2016
The decline of oil and gas prices have severely affected the company’s financials:
from Halliburton’s annual report 2016
According to annual report of 2016, losses from 2015 and 2016 were primarily due to failed merger with Baker Hughes:
“Reported losses during these periods were primarily due to Baker Hughes related costs and termination fee of $4.1 billion and impairments and other charges of $3.4 billion for the year ended December 31, 2016, and impairments and other charges of $2.2 billion for the year ended December 31, 2015.”
Dave Lesar, Chairman and CEO said:
“The North America market appears to have rounded the corner, but the international downward cycle is still playing out. In the international markets, low commodity prices have stressed budgets and have impacted economics across deepwater and mature field markets, which led to decreased activity and pricing throughout 2016. Despite these headwinds, we maintained our margin in the Eastern Hemisphere for the fourth quarter. We do not expect to see an inflection in the international markets until the latter half of 2017. “
“We gained significant market share through the downturn, and as the market stabilized we leveraged this share to drive margin improvement. This market share improvement continued in the fourth quarter as we outgrew our primary competitor in North America, Latin America and the Eastern Hemisphere,”
In the first quarter of 2017, the company cannot succeed to become profitability again but Halliburton strongly lowered its operational losses:
The efficiency of oil rigs are strongly increasing, roughly 30% annually, which means that oil companies can afford more and more rigs at low oil prices. This is the one of the main reasons why the rig count is recovering so fast.
Trump’s plan to boost domestic oil and gas production can strongly increase the revenue of Halliburton and help the company to return to profitability which has already began.
No Investment or Financial Advice.