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Why Halliburton's Settlement Is Great News for Shareholders

Tickers in this article: BHI BP HAL RIG SLB

NEW YORK (TheStreet) -- Halliburton's announcement Tuesday that it has reached a $1.1 billion agreement to settle most claims related to its role in the 2010 Deepwater Horizon oil rig explosion could prove to be a buying opportunity for long-term investors.

That would be welcome news, as the company's shares have fallen by nearly 5% since the beginning of July on the back of the slump in oil prices. So far this year, Halliburton's shares have risen by about 33%, closing at $67.49 on Tuesday.

The settlement was a positive development, as it removes the uncertainty related to spill claims and allows the company to focus on its domestic and international businesses.

The company has a trailing price-earnings ratio of 20.2. In these terms, Halliburton's closest competitors, Schlumberger and Baker Hughes , are slightly more expensive with trailing price-earnings ratios of 21.1 and 23.8, respectively.

The explosion in the Gulf of Mexico on the rig, which was owned by Transocean Ltd. and the subsequent leakage of millions of barrels of oil from the Macondo well, operated by BP , turned into one of the worst environmental disasters ever. Halliburton carried out the cement work on the Macondo well, which, as per spill victims and BP, was faulty.

Halliburton has set aside $1.3 billion to deal with expenses related to the law suits. Susie McMichael, Halliburton’s representative, did not provide any comments on the settlement.”

Meanwhile, this week, the European Brent crude prices for October delivery touched 16-month lows, while U.S. crude slipped to its lowest levels since mid-January.

That said, the exploration and production activity in North America is still going strong. In the second quarter, Halliburton's North American revenue increased 11% on the back of a 4% increase in U.S. land rig count from the first quarter, partly due to strong levels of horizontal drilling at Permian Basin in West Texas.