The Houston-based oilfield services company, Halliburton Company (HAL) has received a letter of intent (LOI) from Shell Iraq Petroleum Development BV to develop the Majnoon field in Southern Iraq.
Under the terms of the agreement, Halliburton will serve as project manager for the development and will work in association with rig contractor Nabors Industries Ltd. (NBR) and Iraq Drilling Company (“IDC”). However, the contract needs final approval from the Iraqi authorities.
Majnoon, located in southern Iraq, is among the richest oil fields in the world with oil reserves of 23 to 25 billion barrels and proven reserves of 12.8 billion barrels of oil. The state of Iraq has a 25% stake in the project, while Petroliam Nasional Berhad (Petronas) holds a 30% interest. Shell, with a 45% interest owner, acts as the lead operator.
Shell has also highlighted that the consortium is expected to increase production to a plateau of 1.8 million barrels of oil per day from the current production of approximately 45,000 barrels of oil per day.
Halliburton is also taking prudent steps by investing considerably to provide services to Shell and the alliance. The company possesses the infrastructure, technology and human resources to achieve the production target.
With more than 4,000 employees working in the Middle East, Halliburton completed the first phase of construction in Burjisia, Iraq. We believe the company’s diversified product mix and focus on returns will support earnings per share growth over the next several years. Hence, the Zacks #2 Rank (short-term ’Buy’ rating) is reiterated for Halliburton.
However, the intense competition, natural gas centric North American drilling scenario and the expected curtailment in incremental drilling projects keep us on the sidelines. Hence, we maintain our Neutral recommendation for the long term.
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