Does Halliburton Measure up to Schlumberger?

I remain convinced that the time is ripe for at least some oil-field services representation in well-structured investment portfolios. Obviously, there are numerous ways to accomplish that objective. But as I analyze companies in the sector, I continue to return to the question of whether Halliburton (NYSE: HAL  ) matches its larger rival Schlumberger (NYSE: SLB  ) as a compelling representative of the group.

I've recently revisited Halliburton, including studying management's comments at both last week's Barclay's CEO Energy Conference and Wednesday's UBS Houston Energy Symposium. Jeff Miller, the company's COO, did the heavy lifting at Barclay's, with help from Mark McCollum, the company's CFO. McCollum handled the task at the UBS session.

A Cook's tour
Beyond that, Miller's comments on the company were essentially divided between a look at the benefits of both horizontal drilling and deepwater operations and a tour of global areas of energy strength and weakness. He said, for instance, that more than a third of the land rigs drilling worldwide are now doing so horizontally.

As to the offshore, he noted that "over 100 semisubmersibles and drill ships were built into the fleet over the last four years, most of which were designed to operate in water depths greater than 5,000 feet." That trend obviously benefits Halliburton and its peers, who provide a growing array of deepwater services.

As to North America, growth is obviously strongest in the Gulf of Mexico, especially down deep. Onshore, a significant development involves the advancement of pad drilling, which is dramatically increasing drilling efficiency, reducing the time required to dig a well, and thereby cutting operating costs. As McCollum noted on Wednesday, the average time required to drill a typical horizontal well has declined from 25.7 days in the first quarter of last year to 20.5 days in the most recent period.

Looking internationally, Miller pointed to strength in the Middle East -- where both Saudi Arabia and Oman are entering the world of unconventional drilling -- along with Australia and China. Indeed, he referred to the last-named country as "an exciting market."

Latin America contains potentially major plays, such as Argentina's Vaca Muerta. However, 2013 has been a tough year for the service companies in Mexico, and Brazil. The latter, which ginned up all sorts of excitement for the frequency of its deepwater discoveries a few years ago, continues to slow. In fact, on Sunday Bloomberg announced that a reduction in activity by Petrobras has resulted in Halliburton's dismissal of about 100 Brazilian workers in the past 90 days.

Macondo lingers
Halliburton's situation, as it relates to the aftermath of the 2010 explosion of BP's (NYSE: BP  ) Macondo well in the Gulf of Mexico, wasn't emphasized during the conferences, but it clearly deserves investors' attention. Phase one of a U.S. District Court trial was conducted in New Orleans between February and May. Its objective was to determine the causes of the tragedy.

A second phase is scheduled to begin on the final day of this month. At issue will be an attempt to ascertain the amount of oil that gushed into the Gulf following the explosion.

Still another phase will follow, probably next year. Its purpose will be an assessment of the penalties to be handed down to BP, Transocean (NYSE: RIG  ) , the owner of the ill-fated Deepwater Horizon rig, and Halliburton, which was responsible for cementing the well. Clearly, the ill effects of the Macondo disaster will hang over the heads of the companies involved -- including Halliburton -- for some time.

Topping the competition
McCollum pointed to a pair of especially noteworthy strengths at Halliburton during the UBS conference. For one, the company outstripped its peer group in revenue generation, in both North America and internationally, between the first quarter of 2010 and the second quarter of this year. Similarly, in 2011, 2012, and thus far in 2013, Halliburton has topped that same peer group's average return on capital employed.

Takeaway
I continue to be a fan of Schlumberger for such strengths as its global spread, its commitment to research and development, and its promising new OneSubsea joint venture with Cameron International. However, it seems that concerted research into the prospects for Halliburton's continued advancement would constitute time well spent for Fools with a bent for the services side of energy.

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