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Tuesday, October 24, 2006

Halliburton: Big Oil Canary In The Coal Mine (HAL)(XOM)(CVX)

Halliburton, the big oil field services company announced outstanding earnings for the third quarter. Net from continuing operations rose from $492 million in the quarter last year to $615 million in the most recent period.

Halliburton is also spinning off its KBR construction unit in an IPO that should value the company at about $10 billion. It does sound like good news that just gets better. Halliburton’s results were driven by the needs of the big oil companies to find more of the black gold and the company was rewarded with better earnings.

So, why then is HAL’s stock trading at just above $29 on a 52-week high/low of $41.99/$26.33. Could it be $59 a barrel oil? It’s a trick question, but the answer is probably “yes”. If so, the price of some of Halliburton’s largest customers might be about to come down as well.

Shares of Exxon and Chevron trade very near their 12-month highs. It may not make a great deal of sense for one of the largest suppliers of services to big oil to trade near its low. At least not while big oil itself trades so high.

The market has a way of evening things out. In this case, that probably does not mean Halliburton’s price is heading up.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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