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The company logo of Halliburton oilfield services corporate offices is seen in Houston, Texas in this April 6, 2012, file photo. Halliburton Co is in talks to settle private claims against it in a trial to determine how blame should be shared for the 2010 Gulf of Mexico spill, the company said on April 22, 2013, and it took a $1 billion pretax charge for a possible deal. REUTERS/Richard Carson/Files

Halliburton to buy Baker Hughes

Halliburton will buy rival Baker Hughes for cash and stock worth $34.6 billion in a deal announced Monday that created uncertainty for the more than 2,200 employees of the two companies in the Odessa area and for the Permian Basin oilmen who rely on the service companies to frack their wells.

Representatives of Halliburton and Baker Hughes said it is too early to determine how integration of the two companies would play out in the Permian Basin. Regulators and shareholders still must approve the deal, which industry analysts said was driven by expensive well servicing costs and increasing competition amid decreasing oil prices.

Company officials expected to close in the second half of 2015.

Layoffs were expected among duplicate positions during the integration even as both companies have announced plans to grow in the region.

But the development was viewed as a net positive for Odessa, home to the deca-million dollar regional campuses of both companies. Whether both facilities will remain was not immediately clear.

“Either way, it looks like one is going to stay in Odessa,” said Kirk Edwards, the Odessa oilman who is president of Latigo Petroleum, which operates in the Panhandle. “The announcement is very positive news for Odessa either way it goes because both of them are located here and will continue to grow in this community.”

Baker Hughes and Halliburton each floated workforce expansion figures this summer that representatives of the companies declined to address on Monday. Baker Hughes had announced relocation of about 100 Bakersfield, Calif., employees as city officials heard plans to hire hundreds more. Halliburton was planning to grow its workforce by about 500 people in the coming years.

Related: Halliburton, Baker Hughes buy more sand, railcars as demand piles up

That could still happen.

“The sum of the two might not be as great now, because you do have those efficiencies, but in an area with 500 plus rigs, you are still seeing a huge influx into the Permian Basin,” said Ben Shattuck, an analyst with Wood Mackenzie in Houston.

Together, Halliburton and Baker Hughes would claim about 40 percent of the oilfield services market. Halliburton Chairman and CEO Dave Lesar said in a conference call Monday that the deal “will create a bellwether global oilfield service company” with a larger portfolio of product lines.

Baker Hughes and Halliburton offer services that overlap but the combined company should be able reduce costs by $2 billion a year as soon as 2017, Lesar said.

“In many cases in many basins we are just sitting side by side with each other and basically figuring out how we capture and identify the best people in those locations,” Lesar said during the conference call. “Putting them together leads us to the high confidence we have.”

That is literally true in Odessa, with both campuses in the 6100 of W. Murphy Street. But the “duplicate footprints” he and fellow executives referred to also included potential savings in areas beyond real estate such as equipment, supply services maintenance, compliance costs and personnel.

The savings could benefit oil and gas companies in the Permian Basin dealing with about a 30 percent decline in the West Texas Intermediate oil price since June. Officials at several of those companies have called on service companies to share in those costs. At the same time, drillers’ could respond to oil prices remaining below $80 by scaling back their drilling programs, lessening demand for the sort of services Halliburton and Baker Hughes provide.

“You are going to have some kind of scalable efficiency beyond what was there before,” Shattuck said. “So that is going to help with costs at a time when the E&P sector is looking directly to service companies to reduce costs when WTI prices have fallen like they have.”

The combined company would also likely increase its research and development budget, potentially bringing down costs in complex geological formations like the Permian’s Delaware basin to the west.

Halliburton officials said the company is willing divest businesses generating up to about $7.5 billion in revenue in order to get regulatory approval, but they believe they will have to sell less. If the deal fails because of antitrust issues, Halliburton officials agreed to pay a termination fee of $3.5 billion.

The announcement of a deal came days after talks between the two had stalled, with speculation of a hostile takeover by Halliburton if an agreement could not be reached.

The companies combined in 2013 operated in more than 80 countries with more than 136,000 employees and had $51.8 billion in revenue. That revenue was more than larger oilfield service company Schlumberger’s, but Schlumberger would remain about double the size of the combined company.

Industry analysts said the deal could put pressure on smaller oilfield services firms to consolidate. And the Permian Basin has dozens.

“We’ll just be watching for opportunities that come out of such a big transition like this,” said Dale Redman, CEO of ProPetro, a Midland-based competitor that is one of the largest private players in the Permian Basin’s oilfield services market. “We don’t think it hurts our position in the market.”

Redman declined to talk specifics about how the Halliburton and Baker Hughes deal could affect his company, saying it would be premature.

At the same time, that might not apply companies such as ProPetro that focus on specific and complex areas maintain their competitive advantage, Shattuck said.

“When you hear the company say there is going to be a $2 billion savings, it usually doesn’t mean something good for jobs,” Redman said. “I know consolidation is part of the business we are in, but anytime that you talk about jobs and how that affects people, those would be my biggest concerns of a deal of that size.”

 

Contact Corey Paul on Twitter @OAcrude on Facebook at OA Corey Paul or call 432-333-7768.

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