Summary
Softening of the Permian and lack of conventional capex have driven Halliburton to 1-year lows.
We think this is an overreaction by the market that in no way reflects the company's near-term prospects.
We lay out a thesis for a rebound in upstream oilfield service companies.
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Introduction
The upstream oil service industry is being written off for dead as oil prices have tanked in Q-4. To be frank, there were structural problems in some of the shale plays that were impacting results and share prices for the previous half year for companies leveraged to shale. Halliburton (NYSE:HAL), as a prime example, has struggled most of the year. If you initiated a long position anytime after Dec 2017, you are underwater in it, uncomfortably so in many cases.
It's been years since I've seen the sentiment quite so negative on this sector of the energy industry. I suppose 2008-9 would be the most obvious analogue. The financial world was imploding, destabilizing entire countries in some cases and the commodity super-cycle story that had helped to propel oil to a mid-year high in 2008 of nearly $150/bbl, came to an abrupt, screaming halt. It was the zombie apocalypse.
