Halliburton's Expansion in Brazil: Key Insights for Investors

Strategic Motivations for Expanding in Brazil

Halliburton's strategic motivations for expanding in Brazil include securing significant contracts with Petrobras, focusing on high-return opportunities, and leveraging technology and integration capabilities to improve margins. The increasing infrastructure builds and rising energy demand further support the expansion rationale.

"This contract, which covers nearly two-thirds of all interventions and plug and abandonment work for Petrobras, reinforces Halliburton's strategic position in the Brazilian market." --- (HAL, press release, 2024/08/08)

"awarded during the quarter was to supply electrical submersible pumps, variable speed drives and sand separation across 450 wells to help the customer in Brazil optimize efficiency, reliability and sustainability of its onshore operations in the Baha Terra cluster." --- (BKR, earning call, 2024/Q1)

"We continue to focus on this selectively. The market internationally remains tight and it favors the best performer from execution and we'll use this to deploy technology, fit-for-basin technology, use our unique integration capability and spice it up, if I may, with digital capability to increase and improve our margin going forward." --- (SLB, earning call, 2024/Q2)

"Our strategic priorities are to: - International : Allocate our capital to the highest return opportunities and increase our international growth in both onshore and offshore markets." --- (HAL, sec filing, 2024/Q2)

"And again, it's part of the expansive portfolio that we have, including the pumps, the valves and the other areas that go into the other sectors when you think of refineries and also petrochemicals that are also increasing infrastructure builds that are happening around the world as we continue through an energy demand that is increasing." --- (BKR, earning call, 2024/Q1)

Current State of the Brazilian Oil and Gas Market

Brazil's oil and gas market is expanding with successful new finds and a shift towards natural gas, expected to grow by over 60% by 2030, necessitating significant infrastructure investment. Strong market fundamentals and growing demand further support this expansion.

"You may have seen they've also explored successfully new finds, both oil and gas, in the recent months. So, the country is set to expand in gas to complement their oil capacity, sustained capacity and slight expansion." --- (SLB, earning call, 2024/Q2)

"Some of the more significant determinants of current and future spending levels of our customers are oil and natural gas prices and our customers' expectations about future prices, global oil supply and demand, completions intensity, the world economy, the availability of capital, government regulation, and global stability, which together drive worldwide drilling and completions activity." --- (HAL, sec filing, 2024/Q1)

"Following the recent announcement to not pursue an increase to its maximum sustainable capacity, the country's shifting focus towards natural gas where production is now expected to increase by more than 60% through 2030, will require significant investment in gas infrastructure." --- (BKR, earning call, 2024/Q1)

"The oil and gas industry continues to benefit from strong market fundamentals driven by a growing demand outlook." --- (SLB, sec filing, 2024/Q1)

"Some of the more significant determinants of current and future spending levels of our customers are oil and natural gas prices and our customers’ expectations about future prices, global oil supply and demand, completions intensity, the world economy, the availability of capital, government regulation, and global stability, which together drive worldwide drilling and completions activity." --- (HAL, sec filing, 2024/Q2)

Operational Challenges and Local Partnerships

Halliburton faces operational challenges in Brazil, including inflationary cost increases and potential payment delays due to customers' financial constraints. However, strategic local partnerships and efficient project integration are crucial for overcoming these hurdles and capitalizing on growth opportunities in the region.

"Hence, customer engaging to secure capacity on long projects such as deepwater and subsea, and they are looking for partnership collaboration to make sure that we help them into securing the best capital efficiency, as I highlighted, look for integration to accelerate the product cycle to get faster to first oil, first gas. So if anything, I think I see more, stronger" --- (SLB, earning call, 2024/Q1)

"Also, while we have been impacted by inflationary cost increases, primarily related to chemicals, cement, and logistics costs, we generally try to pass much of those increases on to our customers and we believe we have effective solutions to minimize their operational impact." --- (HAL, sec filing, 2024/Q2)

"In a challenging economic environment, we may experience delays in the payment of our invoices due to customers' lower cash flow from operations or their more limited access to credit markets." --- (BKR, sec filing, 2024/Q1)

"Growth was led by our Production Systems and Reservoir Performance divisions, which visibly expanded margins due to the favorable conversion of backlog as well as many business line operating and record activity levels. Demand for our services and equipment is being further reinforced by the combination of long-cycle development activity and the acceleration of production recovery investments, particularly in the Middle East and Asia and Latin America." --- (SLB, earning call, 2024/Q2)

Risks and Opportunities in the Brazilian Market

Halliburton sees significant opportunities in Brazil, driven by market growth and its strong position in the gas sector. Competitors like SLB and BKR also highlight Brazil's importance, with anticipated FPSO awards and brownfield projects presenting further opportunities. However, the competitive landscape and need for continued investment pose risks.

"Brazil is a key market for us, and our continued in-country investments are key to support the growth we envisage for the region." --- (SLB, press release, 2024/08/02)

"Over the next few years, we anticipate the market awards 7 to 9 FPSOs per year, driven by growth in Brazil and Guyana." --- (BKR, earning call, 2024/Q2)

"And I'm very confident in the long-term growth of that market. The rebalancing again to gas is, we're meaningful players in that part of the market and expect that will only be good for Halliburton." --- (HAL, earning call, 2024/Q1)

"So this will take place in several basins we believe, in particular in Brazil and another place and we'll be ready to deploy this for our customers." --- (SLB, earning call, 2024/Q2)

"We remain very optimistic about the continued aspect of international growth and also the mature assets and the opportunity around mature asset solutions that we can actually provide to the company and the customers we have, and brownfield opportunities that exist, as people continue to look at increasing production." --- (BKR, earning call, 2024/Q2)

Future Outlook and Long-term Impact

Halliburton's future outlook in Brazil is optimistic, with confidence in extending its technological moat and maintaining consistent expectations. The company's positive credit rating upgrade and long-term customer planning support a strong long-term impact, despite potential risks associated with long-term contracts.

"And so we're extending that moat around that technology every day. And so I'm confident that as we continue into the future, we've got quite a glide path of ideas and things that will make that, yet again, even more effective for customers over time." --- (HAL, earning call, 2024/Q2)

"As I look ahead for the remainder of this year, my outlook today is consistent with our expectations at the start of the year." --- (HAL, earning call, 2024/Q2)

"Credit ratings. Our credit ratings with Standard & Poor’s (S&P) remain BBB+ for our long-term debt and A-2 for our short-term debt, with an upgrade to positive outlook from stable outlook during the fourth quarter of 2023." --- (HAL, sec filing, 2024/Q1)

"Our customers are planning for the long-term and I expect they will execute work throughout the year as planned." --- (HAL, earning call, 2024/Q1)

"I fully appreciate that they're long-term contracts and they justify the returns, but just thinking about any potential white space risk on those contracts." --- (HAL, earning call, 2024/Q2)