Shares of oil services giant Halliburton (NYSE:HAL) declined 15.4% in December, according to S&P Global Market Intelligence. Much of that drop was likely attributed to declines in the broader market, but the recent drop in oil prices could significantly change the timetable for any recovery in the oil and gas industry.
Halliburton is a global oil services provider, but it has a dominant market share providing drilling and well completion services for North American shale. Because shale wells can be drilled and completed incredibly quickly compared to other oil sources, drilling activity for shale has been incredibly volatile. In 2018, drilling activity was so robust it led to record oil production in the U.S. and stretched oil pipeline infrastructure to its capacity limits.
With limited available pipeline space and a recent pullback in oil prices, drilling activity dried up. As one oil services executive put it on a conference call in October, there is "more white space on our customers' calendars for the rest of the year" -- meaning they didn't expect to drill or complete new wells. For a company like Halliburton, that means little revenue coming in the door from shale.
Management expects drilling activity to pick back up again in 2019 as its customers (oil and gas producers) build their new capital spending budgets for the year. Those budgets could change quickly, though; if oil prices remain below $50 as they have for the past couple of weeks, then it could make some producers reconsider their capital budgets and invest less money than Halliburton and other services companies anticipated.
If watching oil prices over the past couple of years has taught us anything, it's that we have absolutely no idea what they will do. Two weeks of low prices is by no means a trend, but this recent dip could last days, months, or even longer. The longer prices stay low, the more likely we'll see producers trim their capital spending plans, which means Halliburton's recent streak of middling earnings reports could continue.
Check out the latest Halliburton earnings call transcript.