The title of this article is the type of headline guaranteed to get an investor's attention whether they already hold Halliburton (NYSE:HAL) shares or are contemplating a buy. If you're a shareholder, is it time to panic and sell? If you're shopping for Halliburton shares is this a buying opportunity?

It's the kind of headline geared to provoke an adrenaline rush and get you to read the article.

It's the kind of headline that's particularly annoying because there is usually a "rest of the story" angle buried in the article, and the headline is only a half-truth.

The rest of the story
Yes, it's true -- Halliburton's net income fell to $658 million in the fourth quarter of 2006 from $1.1 billion in the fourth quarter of 2005. It sounds awful. Did Halliburton's business fall off a cliff? Did customers desert the company and cancel all of their contracts?

Well ... the rest of the story is the $540 million benefit in the 2005 quarter created by the reduction of deferred tax assets.

Fourth-Quarter Income


4Q 2006

4Q 2005




Operating income



Income before taxes



Benefit (provision) for taxes



Net income



Diluted earnings per share



Numbers in millions, except earnings per share. From the company's Q4 financial report.

If we back out the tax benefit, we get adjusted earnings of $0.53, for a 20% gain year over year. That doesn't look like a 40% plunge and perhaps doesn't warrant panicking and hitting the sell button.

O Canada
Not all was sunshine and roses in the well-services sector in the fourth quarter. Late last week, Matthew Crews reported falling sequential revenue and net income for BJ Services (NYSE:BJS). The main culprit was business in the pressure-pumping-services segment in Canada. Demand fell largely because of declines in natural-gas prices. As prices drop, demand for well services follows suit.

Halliburton experienced the same sluggish demand in North America, with Canadian energy-services business being especially weak. Energy-services revenue did increase by 23% in Q4 year over year but increased sequentially by only 3.4%, a figure that concerned both the company and analysts. And the weak results in North America were not due just to a slowdown in Canadian pressure-pumping business. Heavy winter storms in the West slowed work to a crawl and idled equipment and workers. Workers got an extra paid holiday, and Halliburton got coal in its stocking. However, the company stresses that the lost business has been deferred, not cancelled.

Back to the future
The divestiture of KBR is on schedule and will be completed in April. Halliburton is contemplating either a spin-off or a split-off. The former would involve giving shares of KBR to current Halliburton shareholders as a dividend, and in the latter, investors would swap shares of Halliburton for shares of KBR. The split-off would provide the equivalent of share repurchases and is more rapidly accretive to the bottom line.

Canada will behave better in the first quarter of 2007, according to management, but the seasonal Q2 slowdown as the freeze breaks up will give the usual slow Q2 results.

Business in the Eastern Hemisphere continues to build and margins will improve as the expensive mobilization ramp-up for new contracts begins to moderate. Halliburton continues to sign new business in Africa, Saudi Arabia, Siberia, and other parts of Russia. It is vital for the company to expand international operations and smooth seasonal slowdowns in North America.

As with most well-services companies, prices for oil and gas continue to have an impact on revenue and contract work. Companies with a broader international footprint, such as Schlumberger (NYSE:SLB), have smoother returns. Halliburton is cognizant of that and is making progress finding work in foreign markets.

While a headline screaming about a 40% drop in income may grab your attention, don't believe everything you read.

Other sensational headlines:

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Fool contributor Jean Graham owns shares of Halliburton and BJ Services. The Fool has a disclosure policy.