Halliburton Pricing Spineometer: 2 of 5 Vertebrae

Halliburton, an oil services company, had a positive Q2 2023. Revenue increased 14% to $5.7 billion and earnings before interest and taxes increased 42% to $1.0 billion over the same period last year after excluding impairments.

A review of Halliburton July 19^th earnings call and financial report clarifies the drivers to this performance and the importance of pricing capability.

Three key factors are supporting the strong performance of Halliburton today according to management statements.  (1) Strong and growing underlying demand globally for the kind of offerings Halliburton delivers.  (2) Increasing sales of digital offerings and related services that improve efficiencies in oil field exploration, drilling, and operations. (3) A customer focus on long-term and complex projects that result in higher reliability and margin revenues.

In anticipating steady growth in demand for its services across the globe, Jeff Miller, CEO, stated “In this environment, I expect quality services and equipment to remain tight and pricing to continue to improve.”

Miller continued by speaking about Halliburton’s “differentiated technology offerings”, “selective contract wins”, and “collaborative approach to working with customers” on projects that take a decade or so to come to fruition.  When asked about pricing softness observed in the market, Miller stated, “We don’t participate in the bottom part of that market”.

Each of the three key factors that are contributing to strong financial performance and discussed by Miller implies a need for a sophisticated and broad strategic pricing capability.

The breadth of these strategic pricing challenges would include new offering & digital pricing, competitive intelligence, customer pricing, project pricing, pricing analytics, price variance management, macroeconomics and currency management in pricing, price structures, indices within long-term contracts, and much more.

The span of its operations pushes the value of sophisticated strategic thinking in pricing even further.  Halliburton is a global company operating in not just North America (United States, Canada, and Mexico), but also Saudi Arabia, Brazil, Argentina, Caribbean, Angola, Norway, and elsewhere.  Such a global footprint with often national customers requires pricing to engage macroeconomic thinking.

Given this set of challenges and the acknowledged importance of pricing by the CEO, we expect Halliburton to have 80 to 200 pricing professionals of varying focus, seniority, and geography.

That isn’t what I found.

Research into the quality of Halliburton’s pricing team yielded underwhelming results.  A handful of individuals could be identified as pricing professionals but far below from the numbers expected. What pricing professionals were identified worked at more junior levels of analyst and manager and not at senior director and vice president levels.  In terms of breadth of responsibilities, pricing professionals were engaged with order management and contract pricing at the more administrative end of pricing and in technology pricing and market forecasting at the more strategic end of pricing.  The contract pricing roles led to pricing professionals being distributed across the globe in locals such as the U.S., Argentina, Saudi Arabia, Libya, Scotland, and elsewhere.

Yet many other areas would benefit from a pricing professional’s insight.  Most of these areas appeared to be managed by product marketing, technology, and commercial executives themselves without engaging pricing.  While I am sure they are very capable individuals, professional help can be beneficial.

Given the importance and capability of pricing at Halliburton as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of August ‘23.

Halliburton Pricing Spineometer: 2 out of 5 Vertebrae.

HAL (Halliburton Co.) was relatively unchanged at 38.1 on the day prior to their earnings call and 38.2 one week later. FY 2022 revenue of $20.3 billion with a 13% operating margin and P/E ratio near 14.

For FY 2022, a 1% improvement in price would yield a 7.5% improvement in EBIT holding all else constant at Halliburton.