After Q2 results Halliburton's (HAL) CEO, Dave Lesar, intimated that animal spirits had returned to the oil patch. The rise in oil prices to $50 has buoyed shale oil plays. They have started drilling again, which has helped the prospects of major oil services firms like Halliburton, Schlumberger (SLB) and Baker Hughes (BHI). Total revenue of $3.8 billion was flat sequentially but down 31% Y/Y.

That said, Mr. Lesar delivered on his prognostications as revenue from North America rose 9% Q/Q. The average rig count rose 14% during the quarter, which connotes higher drilling activity. However, the return of animal spirits to North America might not lift Halliburton long-term for the following reasons:

There Might Be A Delay In Services Revenue

The general consensus is that while equipment spending in North America might rebound, services revenue could lag. First of all, shale plays are still highly-indebted and strapped for cash. For now, it might be prudent to drill while oil hovers near $50, yet cut back on services until oil prices find a firm footing. Halliburton intimated that there could be slim pickings for services revenue going forward:

The average U.S. rig count increased 14% over the quarter, driven primarily by rig additions to smaller operators where we saw a trend of less service intensive wells, which is not activity typically worth chasing at today's pricing.

And the business that remains will likely be hard-fought. Schlumberger recently admitted that at the hydraulic fracturing segment remains oversupplied:

In the hydraulic fracturing market, the stage count increased by 17% sequentially, driven by higher activity and also by customers now actively depleting their duct well inventory. Still the fracturing market continues to be completely commoditized and significantly oversupplied with a large number of very hungry players.

A bevy of oil services firms fighting over a shrinking pie is good for drillers, but not so good oil services firms. And while Halliburton is loathe to chase business, financially strapped oil services companies like Weatherford International (WFT) might not have that luxury. Weatherford's $7.5 billion debt load represents 30x EBITDA, and its has burned through $540 million in cash this year. Weatherford's Q3 EBITDA in North America was -$40 million, which could portend it is underpricing business in order to stay afloat. Such cut throat competition could dampen Halliburton's prospects in the region.

International Is A Headwind

Now that North America seems to be gaining traction, Halliburton's international operations are providing headwinds. The company experienced revenue and pricing headwinds in all three international markets. Total international revenue fell 6% Q/Q and the international rig count fell 17% compared to the year-earlier period.

The worst performer was Latin America where revenue was off 13%. Crisis-stricken Venezuela has seen its revenue dampened with the rout in oil prices. The country gets about half its revenue from oil and has amassed billions in unpaid bills to oil services firms as it has faced trouble feeding its citizens and providing basic services. Halliburton has curtailed operations in Venezuela due to slow payments from state oil company PDVSA. It currently has $564 million in trade receivables (13% of total receivables) in Venezuela and expects the country to be a major headwind going forward.

Conclusion

The decline in Halliburton's international operations offset the euphoria from the rebound in North America. The company's top line growth could remain dismal until international bottoms out, which might not occur until the first half of 2017. Meanwhile, certain segments in North America remain oversupplied which could cap the company's paltry 13% EBITDA margins. At nearly 24x run-rate EBITDA (last three-quarters annualized) HAL is grossly overvalued. Avoid the stock.