Halliburton deal teeters close to collapse

THE lights seem to be dimming on the $46 billion tie-up between two of the world’s biggest drilling concerns: Halliburton and Baker Hughes.
Halliburton deal teeters close to collapse Halliburton deal teeters close to collapse Halliburton deal teeters close to collapse Halliburton deal teeters close to collapse Halliburton deal teeters close to collapse


Haydn Black

The cash and share deal between Schlumberger and Cameron has created a company with combined revenues of $71 billion, based on 2014 figures, and about 95,000 employees across 85 countries

Schlumberger said it would also deliver technology-driven growth by integrating its reservoir and well technology with Cameron’s wellhead, surface, flow control and processing expertise.

The combined group’s executive chairman Paal Kibsgaard said the enlarged Schlumberger was looking at much closer integration between the surface and subsurface components of both drilling and production systems.

“We are ready to begin the process of realising the synergies made possible by this merger and our focus in the near term is on the execution of our integration plans, while continuing to deliver safety and quality in our field operations,” he said in a statement.

The company expects to see improved operational performance, higher levels of cost efficiency and close commercial alignment through new risk-based business models.

But while Schlumberger and Cameron have been able to cosy up, the reception to the marriage of Halliburton and Baker Hughes appears to be getting increasingly frosty.

Australian regulators have refused to back the deal, European anti-trust regulators are not expected to rule before July 11, and now it appears the US Department of Justice has not been placated by proposed asset shedding, with the New York Post reporting that the DOJ is tilting towards blocking the deal.

The paper says the DOJ could make an announcement as early as tomorrow night.

Halliburton initially said it could sell up to $US7.5 billion ($A9.8 billion) in assets to meet the DOJ’s concerns, plus a “substantial remedies package that it believes will address any substantive competition concerns”, but the DOJ does not appear to be on board, asking Halliburton to sell $10 billion in assets.

A sales process is complicated by the fact that with the collapse in oil prices and demand for drilling there are said to be few buyers, with reports Weatherford is now out of the bidding, leaving only GE as a serious buyer.

Analysts at Barclays recently said the oil price rout is in its “third and most severe phase" and it does not see any recovery in activity until 2017.

At stake is a break fee equal to 10% of Halliburton’s market cap, $3.5 billion, that Halliburton must pay to Baker Hughes, and there are rumours that Baker Hughes is preparing to walk away if the DOJ doesn’t make a decision by the end of the month.

Baker Hughes has been trading at a significant discount to Halliburton’s offer price.

Schlumberger is the world’s largest oil field service provider, while Halliburton and Baker Hughes are the second and third largest oil field service companies in the world.

Schlumberger announced its merger with Cameron in November 2015, one year after Halliburton approached Baker Hughes, and successfully closed it just one month late.

The Halliburton deal has received regulatory clearance in Canada, Colombia, Ecuador, Kazakhstan, South Africa and Turkey, but some big oil companies are also pushing back against it.

Total CEO Patrick Pouyanne might ultimately take the fall for the failure of the Halliburton-Baker Hughes merger, because last week he warned the marriage will result in less competition.

Pouyanne complained that the planned tie-up of the world's second- and third-largest oil services providers is not good news for explorers and producers.

"Obviously when you have less competition in service providers, I'm not in favour," Pouyanne said at the Scotia Howard Weil Energy Conference in New Orleans.

It is understood that both Angola's state oil producer and Chevron Corporation have also complained that the tie-up could raise prices or in some cases, result in a reduction services.

At the same time the DOJ has decided to sue hedge fund ValueAct, alleging it took large stakes in Halliburton and Baker Hughes with plans to influence the deal but didn’t disclose its stake to regulators.

The lawsuit, which says ValueAct used its access to senior Halliburton and Baker Hughes executives to formulate merger and other strategies, said a civil penalty of "at least $US19 million" was appropriate.

ValueAct rejected the government’s claims and vowed to “vigorously defend” its position.