The oil market has gone from bad to worse in recent months, and it will surely have an impact on Halliburton's (NYSE:HAL) fourth-quarter results. That report, which is due out before the market opens on Monday, will give investors one of their first glimpses into how bad things have gotten for the industry, especially in North America, which is a key market for Halliburton. That insight into the market is just one of the three things investors should keep an eye on this quarter, with its margins and its pending merger with Baker Hughes (NYSE:BHI) as two other important areas of focus.

A look back
Before we look ahead, let's take a quick step back and review what happened last quarter. In the third quarter, Halliburton reported $5.6 billion in revenue, which was down 6% quarter over quarter while adjusted operating income fell 21% to $506 million. These results, according to the company, were due to "another step down in activity levels throughout the third quarter, accompanied by further price reductions across the business." Given what happened to oil prices during the fourth quarter, a further step down is very likely.

Keep an eye on margins
The key question on investors' minds will be how steeply that step down in activity affected Halliburton's margins. On last quarter's conference call, acting CFO Christian Garcia said that the company expects its North American revenue and margins to decline. However, it expects "sequential decrementals to be only in the mid-teens due to our cost reduction efforts." That said, oil prices significantly deteriorated in the quarter, which could have put even more pressure on the company to cut its prices and that would have further squeezed margins. If that were the case, it could cause revenue and earnings to fall much steeper than expected.

Watch for any language change on the merger
Aside from trying to navigate through one of the toughest downturns in years, Halliburton is in the process of acquiring Baker Hughes. That deal has proven to be much harder to close because regulators are worried that it will significantly reduce competition. To ease those fears, the company has proposed to sell a number of assets. However, the two companies have yet to find the right combination of asset sales to satisfy regulators. This has forced Halliburton to extend its timeline for closing the deal to the end of April.

Given how tough this transaction is proving to be, investors should keep an eye out for any language change that might hint that the company is less certain that it will be able to close the deal. Last quarter, for example, Halliburton noted in its earnings release that it was "enthusiastic about and fully committed to closing this compelling transaction." If that language changes, it could suggest that it might no longer see a way for it to come to an agreement with regulators.

Listen to its take on the oil market
Last quarter, Halliburton offered a rather bullish take on when the oil market would recover. CEO Dave Lesar said on the conference call that it "anticipate[s] activity to ramp up in the second half of 2016." However, that was before oil prices started falling down a bottomless pit. As such, investors should listen in for any changes to this outlook. In particular, they should key in to what Halliburton is hearing from its customers. For example, if it says that it will spend 2016 paying down debt instead of accelerating oil and gas activity, then that would be a sign that there's a lot more downside in earnings yet to come.

Investor takeaway
Given what is happening to oil prices, Halliburton likely had a very tough quarter, which will probably spill over into the first quarter of 2016. What remains to be seen is if the company now expects things to worsen, which would be the case if its merger with Baker Hughes falls apart and if it writes off any chance of a 2016 recovery in oil-field service activities.

 

Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Halliburton. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.