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Business News/ Companies / India guar shortage to hurt Halliburton profit
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India guar shortage to hurt Halliburton profit

India guar shortage to hurt Halliburton profit

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San Francisco: Halliburton Co. said a shortage of guar beans in India meant North American profit margins this quarter would drop by twice as much as it had expected, knocking its shares down by 5% to an eight-month low.

Guar, which is also used to make sauces and ice cream, is a key part of the hydraulic fracturing fluids that have been in high demand due to a boom in US drilling and well development. Halliburton, the world’s second largest oilfield services company, has said the guar system can now account for as much as 30% of the overall fracking price.

“They’ve been passing along the cost incrementally, but because there’s been such a burst in pricing, it’s been hard to keep up with," said Grant Fox, an analyst at Sterne, Agee and Leach Inc.

The high cost of guar gum, which was noted by sweeteners and starches group Tate and Lyle Plc. when it reported results last week, has been felt across the oilfield services sector. Baker Hughes Inc. has talked of its “horrific" price, while Nabors Industries Ltd is seeking alternatives.

Analysts had previously speculated that Halliburton’s leadership in fracking might mean its supply chain was stronger and that it could absorb such cost rises better than others.

But because of guar, Halliburton now expects second-quarter North American operating margins to decrease between 5 and 5.5 percentage points from the first-quarter level of 25%—a drop of 3 percentage points more than it expected in April.

That would put the margins down below the low 20% range the company expected them to hit later this year.

Halliburton plans to try to offset the higher guar costs in the second half of 2012 by seeking relief from customers and using more “synthetic and other guar alternatives."

“We believe higher costs will be difficult to recover from the customer," UBS analyst Angie Sedita said in a note to clients on Wednesday, as she cut her estimates for second-quarter earnings by 12%.

Halliburton shares, which had risen nearly 2% before the news, closed 3.5% down at $28.10 (Rs 1,548) after touching their lowest since last October. Baker Hughes also erased early gains and ended down 1% at $40.65 after the warning from its larger rival.

But the shares of industry leader Schlumberger Ltd, which unlike the other two makes most of its money outside North America, rose 3.8% higher at $64.59.

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Published: 08 Jun 2012, 12:13 AM IST
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