Halliburton outlook revised to stable at S&P on slowing demand

S&P Global Ratings has revised Halliburton Co.'s outlook to stable from positive, while affirming its 'BBB+' issuer credit rating, citing expectations for declining credit measures with average funds from operations (FFO) to debt remaining below 60% through 2026. This adjustment follows a 6% year-over-year revenue decline in H1 2025, primarily due to reduced North American drilling activity driven by lower oil prices and M&A impacts, alongside a 400 basis point drop in adjusted EBITDA margins. Despite a weaker near-term outlook, exacerbated by its high North American exposure and price-sensitive hydraulic fracturing business, Halliburton intends to distribute $1.6 billion to shareholders this year.

Analysis

S&P Global Ratings has revised Halliburton's outlook to stable from positive, affirming its 'BBB+' issuer credit rating, signaling concern over weakening credit metrics. The revision is predicated on expectations that Funds from Operations (FFO) to debt will remain below the key 60% threshold, with S&P forecasting 45%-50% in 2025 and a modest improvement to 50%-55% in 2026. This cautious outlook is substantiated by deteriorating first-half 2025 results, where revenues declined 6% year-over-year and adjusted EBITDA margins contracted by over 400 basis points to approximately 20%. The weakness is most pronounced in the North American market, which saw an 11% revenue drop due to reduced drilling activity, highlighting the company's significant risk exposure as this region accounted for 42% of 2024 revenue. Despite investing in a transition to electric fleets, the company is currently stacking diesel equipment due to pricing pressure, indicating severe near-term challenges in its core hydraulic fracturing segment. In a notable contrast to the operational headwinds, management has reaffirmed its commitment to return $1.6 billion to shareholders, a figure representing a substantial 85% of its defined free cash flow for the year.

Key Decisions for Investors

• Investors should closely monitor Halliburton's FFO to debt ratio, as its trajectory relative to S&P's 30% downgrade trigger and 60% upgrade target is the primary determinant of the company's credit profile.
• The aggressive $1.6 billion capital return plan should be weighed against the backdrop of declining revenues and contracting margins, as its sustainability is questionable if the forecasted market uptick in late 2026 fails to materialize.
• Given the 11% revenue decline in North America, investors with a bearish outlook on U.S. onshore activity should consider the heightened risk in Halliburton compared to more geographically diversified oilfield service peers.
• Look for evidence of margin stabilization and recovery in upcoming quarters, which would signal that management's cost-reduction efforts and the completion of SAP conversion are successfully counteracting pricing pressures.