3 Things to Watch With Halliburton

Companies focused on natural gas have suffered this year, whether they're focused on finding marketable new uses for the alternative fuel or simply on getting it out of the ground. Few stocks have reflected this market pessimism as effectively as Halliburton (NYSE: HAL  ) , which only recently rebounded toward a flat 2012 performance thanks to better-than-expected earnings results. Halliburton's more than just fracking, but you wouldn't know that by its year-to-date movements:

HAL Total Return Price Chart

HAL Total Return Price data by YCharts.

With that in mind, let's take a look at three critical things Halliburton investors (and would-be investors) must watch in 2012 and beyond, to make sure that this company keeps moving in the right direction.

1. How will Deepwater Horizon ultimately impact Halliburton?
The catastrophic 2010 destruction of a deepwater rig owned by Transocean (NYSE: RIG  ) , leased by BP (NYSE: BP  ) , and operated in part by Halliburton continues to weigh on the fortunes of all three companies. Although Halliburton has been absolved of additional liability that will now fall on BP, it may still accrue substantial restitution responsibilities by the time the case works its way through the courts.

The Bureau of Safety and Environmental Enforcement, the regulatory agency in charge of meting out potential punishments for Deepwater Horizon, is still adamant about its intent to fine any oil-drilling contractor (as well as any oil driller) that violates its rules. Halliburton could tie up its loose ends this year, or its legal tussle might drag on for some time.

2. Will natural gas rebound?
Plenty of companies are banking on resurgent natural gas prices, but Halliburton's the most exposed of its major peers. Its development of modern fracking techniques helped generate the past decade's natural gas boom and subsequent glut. Over-drilling has been pared back for years, resulting in far fewer active rigs than operated five years ago, and thus less potential upside for Halliburton. Still, natural gas production continues to increase, and United States Natural Gas (NYSE: UNG  ) prices remain in the dumps since the country hasn't quite figured out what to do with its gassy bounty:

UNG Total Return Price Chart

UNG Total Return Price data by YCharts.

Few companies are interested in attempting to extract the immense trove of natural gas beneath the country. Despite much publicity, the use of natural gas as a vehicle fuel hasn't moved the consumption needle in a notable way. Yet more natural gas comes out of the ground every year. If natural gas prices don't recover to a greater degree, Halliburton may have a hard time generating significant new income.

3. Can Halliburton improve its stagnant earnings?
Halliburton has not been a great investment lately. Its total gains, including dividends, are just 9% for the past five-year period:

HAL Total Return Price Chart

HAL Total Return Price data by YCharts.

This has got to be exceptionally frustrating for long-term investors, who earned virtually all of their five-bagger gains since 2002 in the first half of that decade:

HAL Total Return Price Chart

HAL Total Return Price data by YCharts.

The problem isn't unique to Halliburton. Schlumberger (NYSE: SLB  ) , the largest company in the sector, has a five-year chart that looks almost identical to Halliburton's:

SLB Total Return Price Chart

SLB Total Return Price data by YCharts.

Revenues continue to improve in both cases, but an industrywide trend toward "difficult" oil seems to be pushing costs up along with the top line. A multiyear shift from natural gas exploration toward oil drilling must also be contributing to mediocre growth -- the oil and gas rigs in operation today are close to the same numbers they had five years ago. Halliburton's internationally diversified, but it needs to improve its bottom line as well as its top line, and that will demand efficiency as well as operational expansion.

Natural gas might get a boost from the next American government, and Halliburton could be in line for big gains. It won't be the only company waiting for Election Day, though. The Motley Fool's got a free report for you on four stocks that could skyrocket after the 2012 elections. It's available for a limited time, so don't wait for November to invest in the future of America -- claim your free report now.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights.

Motley Fool newsletter services have recommended buying shares of Halliburton. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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