As we approach the disruptive event that happens every 4 years in the U.S. which seems to throw the entire world into upheaval for the six to nine months leading up to it, it is becoming increasingly obvious that oil politics are becoming even more important than they normally are.  While the price of oil and natural gas can and will be massaged/managed and cajoled in short term directions the longer term trend given the state of credit deflation and commodity inflation is most definitely higher.

For oil servicing giant and bane of the political left, Halliburton (NYSE:$HAL) will benefit at every twist and turn of the story.  Well positioned politically and strategically, Halliburton’s business is fundamentally supported by both current events and the supply/demand fundamentals.

In all of the misery of the past 12 months in the stock’s price the oil business has not participated.  Rig counts are up across Asia, 5% year over year.  Income from their Middle East/Asia operations were up 59%.  Europe/Africa/CIS region saw income rise 234% year over year.  Oil rigs now account for 70% of their business having shuttered gas wells that were unprofitable. 

The problem has been natural gas both because of the cost of guar gum having risen as high as $15 per pound earlier this year to the supply and demand fundamentals in the U.S. and its inept, balkanized distribution system that is still fighting the last (cold) war with an administration obsessed with moving U.S. energy into unprofitable ventures like solar and wind. 

Halliburton and rival Baker-Hughes (NYSE:$BHI) have both developed synthetic alternatives to guar gum that will shield their businesses from the whims of Mother Nature and potentially lower their operating costs.  Halliburton’s Clear-Stim is touted as being better than guar gum and if that’s the case then there is a real supply opportunity for them.  These developments will be big news for giants like Exxon-Mobil (NYSE:$XOM) as well, who is now the world’s largest producer of natural gas. 

What’s important to note is that Halliburton’s top line revenue and operating income have risen well above its 2008 levels, more than erasing the effects of the financial crisis and volatility in the price of oil.  While volatility is one thing the trend for oil is clearly higher.    Natural gas prices will self-regulate and we are unlikely to ever see such a collapse in price again as those producers who were over-leveraged, like Chesapeake Energy (NYSE:$CHK), with respect to the U.S. gas boom will continue to sell distressed assets on the cheap as the industry consolidates. 

They will only rise from here over time.  The assets are flowing from under-capitalized hands to well-capitalized hands that will more responsibly put them to use and maximize their profit potential through time, thereby ensuring an ever-rising floor for natural gas prices in North America from here.

Between the reorganization of their rig count, ramping up of overseas, especially Asia-Pacific assets, and development of a guar gum replacement against a backdrop of structurally higher oil prices Halliburton looks like it offers a lot of value at a multiple of 10.4 with 1% yield.  The election will likely keep a lid of oil prices until November so investors have a few months and one more earnings report to see how it all fits together.  Buying on the next pull back in equities would make sense in this current market.