Shares of Halliburton fell sharply on Monday as investors grew worried about demand for the company's oilfields services slowing down in the Permian Basin, a key region for the company.
Halliburton said some of its customers are reducing activity and lowering their rig count as production in West Texas and New Mexico outpaces the capacity at which crude oil can be transported out of the region, creating bottlenecks in the supply chain. The bottlenecks have pushed the price of regional crude to a steep discount to benchmark U.S. oil and are threatening to dampen demand for oilfield services and equipment.
The news sent Halliburton's stock down by nearly 8 percent and was on track for its worst day since Nov. 28, 2014, when it dropped 10.9 percent. Halliburton was also the worst performing stock in the S&P 500.
Despite the demand concerns surrounding the Permian Basin, Halliburton still sees future profitability in the area.
"Tightness is an indicator of a great resource, and what is occurring in the Permian today is not new. In some ways, we're a victim of our own success, as we develop longer laterals with better production. As a result, we expect this area to have temporary softness in the back half of 2018, but it's poised to regain activity as a calendar turns to 2019 and additional pipeline capacity is available." Jeffrey Miller, CEO at Halliburton, said in a conference call with analysts.
"We will manage through the year-end and be ready for the increased activity next year. I expect that these temporary efficiency drags will create headwinds for additional upward pricing in the third quarter. Our competitors' new and uncontacted equipment is also creating pricing pressure in some areas. We will continue our efforts to optimize pricing and utilization, pursue continued technology implantation and control cost to maintain our industry-leading returns." Miller said.
The company met analysts' expectations for profit in its second quarter, earning 58 cents per share. Halliburton did however, beat revenue expectations, generating $6.147 billion compared with the $6.112 billion that was estimated. Halliburton's revenue also rose 24 percent $6.15 billion in its second quarter compared to last year.
Halliburton shares were already under pressure before Monday's big decline. Through Friday, the stock was down 7.5 percent year to date.
—Reuters contributed to this report.