* Sees Q2 margins down 5-5.5 percentage points vs Q1
* Halliburton shares down 3.5 pct, Baker Hughes down 1 pct
(Adds other companies affected by guar spike, paragraphs 6-7)
By Braden Reddall
June 6 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 percent to an 8-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 U.S. 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 percent 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 &
Farmers in dominant guar producer India are scrambling to
meet the demand for their crop from the other side of the world
and prices are expected to ease by 2013.
"The price of guar gum has inflated more rapidly than
previously expected, due to concerns over the potential for
shortages for the commodity later in 2012," Halliburton said in
a statement on Wednesday.
The high cost of guar gum, which was noted by sweeteners and
starches group Tate & 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 percent - a
drop of 3 percentage points more than it expected in April.
That would put the margins down below the low 20 percent
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 percent.
Halliburton shares, which had risen nearly 2 percent before
the news, closed 3.5 percent down at $28.10 after touching their
lowest since last October. Baker Hughes also erased early gains
and ended down 1 percent at $40.65 after the warning from its
But the shares of industry leader Schlumberger Ltd,
which unlike the other two makes most of its money outside North
America, rose 3.8 percent higher at $64.59.
(Reporting by Braden Reddall in San Francisco; Editing by
Gerald E. McCormick, Bernard Orr, Richard Chang and Gunna