Halliburton ( HAL ) has emerged as one of leading players in international efforts to extract natural gas from shale deposits given its success in U.S. shale drilling. The company recently announced that it had won a contract from Chevron for shale natural gas exploration in Poland. Shale projects are also coming up in the U.K., Sweden, Spain and Denmark and the Netherlands; however, Halliburton will need to tread lightly given heightened environmental concerns among many European countries. Halliburton competes with other oilfield services firms such as Schlumberger ( SLB ), Baker Hughes ( BHI ) and Weatherford International ( WFT ).
We have a $60 price estimate for Halliburton, which is a 10% premium over its current market price.
Exposure in U.S. Gives Halliburton an Edge
Efforts to extract shale have seen considerable success in North America where shale contributed to 23% of U.S. natural gas production in 2010. Advancements in fracking technology, horizontal drilling and reservoir mapping have led to increased exploration of these deposits. Halliburton has a complete portfolio of technology for exploring shale deposits and has already established itself in Europe as a leader in this field. Last year, Halliburton carried out its first hydraulic fracturing in Poland for state-owned Polish Oil and Gas Company (PGNiG).
Poland could have around 1.4 trillion cubic meters of gas which has attracted interest from international players such as Chevron and Exxon Mobil. Many countries in Europe are looking at shale as a possible alternative for natural gas that will help reduce their dependence on natural gas from Russia and other countries. Russia has long used its vast natural gas reserves for political leverage with European countries.
Environmental Concerns Need to be Addressed
One of the major obstacles to large scale extraction of shale deposits in Europe is the prevailing view that the fracking process involved in shale extraction could be harmful to the environment.
France became the first country to ban the process completely. In the U.K. extraction efforts in the Blackpool were suspended and an investigation was ordered after the region experienced two minor tremors. Concerns have also been raised about the impact of fracking on water quality especially in Poland where water supply is already constrained. Anticipating these concerns, Halliburton has developed a whole range of environmentally safe fracking products as part of its Cleansuite services.
Some companies are also concerned that the geology in Europe may make extraction more complex. Competitor Schlumberger's CEO, Andrew F. Gould, mentioned in an interview that extraction of shale in Europe would pose its own technological and logistical challenges.
Nonetheless with more countries looking to replicate the shale success in the U.S. and reduce Europe's historical dependence on Russia for its natural gas, many countries seem willing to explore shale, which could translate to higher demand for specialty oilfield services firms like Halliburton.
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