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Halliburton Co.'s North American profit margins will be down twice as much as forecast.
Halliburton Co., the world's largest provider of hydraulic-fracturing services, warned today that its North American profit margins this quarter will be down twice as much as forecast because of a shortage of guar beans in India, Bloomberg News reported.
Halliburton said its second-quarter North American margins will be 5 to 5.5 percentage points lower than in the first quarter, Reuters reported.
In hydraulic fracturing, guar gum is used to blend materials that prop open cracks so oil and natural gas can flow out, Bloomberg News explained.
According to Bloomberg News:
Guar is made into a thickening gel used to carry sand down a well and into the cracks created from hydraulic fracturing.
"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 today, according to Reuters.
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"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," Grant Fox, an analyst at Sterne, Agee & Leach, told Reuters.
"The general belief was that Halliburton was more insulated based on early purchasing and inventory of guar supply," Scott Gruber, a New York-based analyst for Sanford C. Bernstein & Co., told Bloomberg News. "This announcement runs counter to that."
Halliburton said it expects guar gum costs to go down when supplies increase next year, Bloomberg News reported. The company plans to offset higher material costs in the remainder of this year by using more "synthetic and other guar alternatives” and passing along some cost increases to customers, Reuters reported.
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