Halliburton Co , the second-largest oilfield services company, posted a higher-than expected quarterly profit on strength in North America and said the industry's outlook had improved.

Profit margins across the industry have suffered since companies such as Halliburton and larger peer Schlumberger Ltd cut prices last year when their oil and gas producing customers slashed spending on new projects.

U.S. natural gas drilling helped lift sales in North America above the year-earlier level, but revenue and profit in the rest of the world slumped.

All the upside was North America, said analyst Kurt Hallead of RBC Capital, while in the rest of world, margins were weaker than everybody expected.

Halliburton shares were nearly unchanged, while its sector index fell.

The company expects North American margins to improve further this quarter, as limited growth in natural gas drilling is offset by growing oil-targeted activity due to the healthy price of crude.

Higher oil prices also drove more project approvals by big exploration and production companies across most of Halliburton's international markets outside Latin America, Chief Executive Dave Lesar said.

I wouldn't point to one particular area as being particularly good or bad, Lesar told analysts on a conference call. The indications are it should be increasing just about everywhere in the Eastern Hemisphere.

Barring a major economic disruption, he said he expected the industry to experience a steady resurgence in international activity in the second half of the year and into 2011.

Halliburton's first-quarter net profit fell 46 percent to $206 million, or 23 cents per share, from $378 million, or 42 cents per share, a year earlier.

Excluding a $31 million charge from Venezuela's currency devaluation and a $10 million tax-related charge there, earnings per share were 28 cents. That topped the analysts' average forecast of 25 cents compiled by Thomson Reuters I/B/E/S.

Revenue fell 4 percent to $3.76 billion, in line with analysts' estimates.


Lesar called the Latin American results disappointing, citing falling activity in Mexico and delays in new projects.

In Mexico, auditors have urged state oil monopoly Pemex to slash its production estimates at the flagship Chincotepec project, where Halliburton has service contracts.

Halliburton is the first major oilfield services company to report results for the latest quarter. Weatherford Ltd is set to do so on Tuesday, followed by Schlumberger on Friday.

Improving cash flow has led to talk of how Halliburton will deploy some of its money. One possibility is acquisitions to expand its range of service offerings, such as its purchase of Boots & Coots announced this month.

Another option is share buybacks, which one Halliburton executive hinted at in February.

Halliburton shares were up 2 cents at $31.65 on Monday morning, while the Philadelphia oil service index <.OSX> was down 1 percent as U.S. oil prices fell more than 2 percent.

(Reporting by Matt Daily in New York and Braden Reddall in San Francisco; Editing by Maureen Bavdek, Derek Caney and Lisa Von Ahn)