Halliburton (HAL) reports Q1 earnings Monday. Analysts expect revenue of $5.75 billion and eps of $0.41. The revenue estimate implies a 3% decline sequentially. Investors should focus on the following key items:

Has Halliburton Relied On North America For Too Long?

Halliburton, Schlumberger (SLB) and Baker Hughes, A GE Company (BHGE) are the big three oil servicing firms pursuant to North America land drilling. These companies have feasted on the white hot oil drilling activity in the region. Halliburton receives over 55% of its total revenue from North America. Last quarter Halliburton’s total revenue was up 10% sequentially. North America led the way with a 14% increase, while other regions grew in the low to mid-single digits.

The U.S. rig count for the week ended April 20th was up 5 to 1013; this represented an 18% increase Y/Y. However, nothing lasts forever. Halliburton’s North America exposure could become a negative if activity turns down in the region. If its revenue falls sequentially then my guess is that some of that decline could come from North America.

In Q2 2017 Halliburton’s management intimated North American shale plays could tap the brakes on additional E&P. Even if drilling activity does not decline then pricing power among North America land drillers could erode. If another price war in North America ensues then those firms with the best balance sheets and strong liquidity could be best-positioned to survive. That could mean weaker firms like Weatherford (WFT) could finally get weeded out.

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