• 4 hours British Utility Companies Brace For Major Reforms
  • 8 hours Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 10 hours Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 11 hours Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 12 hours OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 13 hours London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 14 hours Rosneft Signs $400M Deal With Kurdistan
  • 17 hours Kinder Morgan Warns About Trans Mountain Delays
  • 23 hours India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 1 day Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 1 day Russia, Saudis Team Up To Boost Fracking Tech
  • 2 days Conflicting News Spurs Doubt On Aramco IPO
  • 2 days Exxon Starts Production At New Refinery In Texas
  • 2 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 2 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 2 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 2 days China To Take 5% Of Rosneft’s Output In New Deal
  • 3 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 3 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 3 days VW Fails To Secure Critical Commodity For EVs
  • 3 days Enbridge Pipeline Expansion Finally Approved
  • 3 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 3 days OPEC Oil Deal Compliance Falls To 86%
  • 3 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 3 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 4 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 4 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 4 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 4 days Aramco Says No Plans To Shelve IPO
  • 6 days Trump Passes Iran Nuclear Deal Back to Congress
  • 6 days Texas Shutters More Coal-Fired Plants
  • 7 days Oil Trading Firm Expects Unprecedented U.S. Crude Exports
  • 7 days UK’s FCA Met With Aramco Prior To Proposing Listing Rule Change
  • 7 days Chevron Quits Australian Deepwater Oil Exploration
  • 7 days Europe Braces For End Of Iran Nuclear Deal
  • 7 days Renewable Energy Startup Powering Native American Protest Camp
  • 7 days Husky Energy Set To Restart Pipeline
  • 7 days Russia, Morocco Sign String Of Energy And Military Deals
  • 7 days Norway Looks To Cut Some Of Its Generous Tax Breaks For EVs
  • 8 days China Set To Continue Crude Oil Buying Spree, IEA Says

5 Reasons The Halliburton-Baker Hughes Deal Is Poisoned

5 Reasons The Halliburton-Baker Hughes Deal Is Poisoned

Halliburton’s takeover of Baker Hughes is setting out to be the oil and gas merger of the year. One of the largest such deals in years, it has not, however, met with unanimous approval. From antitrust concerns to management frictions and negative market forces, this has not been a smooth ride. And with a $3.5 billion break-up fee promised to Baker Hughes by Halliburton should the merger fall through, failure would come at a hefty price. Here are five reasons why the deal might still capsize.

1. Worldwide Regulatory Objections

Halliburton and Baker Hughes have not been model corporate citizens around the world. As reported by the Wall Street Journal, both companies have been fined by the Department of Justice and the Securities Exchange Commission for violating the Foreign Corrupt Practices Act. Baker Hughes was found guilty of making illegal payments to a slew of unsavory countries, including Russia, Nigeria, Angola, and Uzbekistan. Halliburton also broke the record for fines under this Act in 2009, shelling out $559 million to settle claims of bribing Nigerian officials. While, on paper, it may seem that the companies have paid their debt to society, regulators are unlikely to gloss over this troubled past. To prevent this, Halliburton has already volunteered to divest itself of $7.5 billion in assets while awaiting an official verdict by U.S. regulators. But once this is over, regulators in Europe and Asia may also seek to have a say.

Related: By Buying Baker Hughes, Halliburton Aims To Dominate US Fracking

2. Growth Is Not Guaranteed

Reports are divided on exactly when these talks got started. The WSJ suspects initial inquiries may have started as far back as 2007 while others think this was rushed through in the face of increased pressure from low oil prices. With a 30% drop in prices since June and with OPEC still refusing to commit to production cuts, it is conceivable that oil will soon be too cheap to profitably drill. This will lead to fewer drills being deployed and some being removed, depriving the likes of Halliburton and Baker Hughes of much-needed income. Their merger will certainly somewhat protect them and land the new Halliburton with a 23% market share in shale drilling. But despite the size of the deal, other global forces risk overwhelming any advantages drawn from it.

3. Unconvinced Stock Market

At the end of the day on Monday, Halliburton’s stock price was down 9.04% after an initial morning spike. Baker Hughes got walloped for 10.3% although this was mitigated by including a massive early morning leap. These figures are not those of fully trusted companies. Indeed, the deal has left investors with a number of concerns. Yahoo Finance reports that the 40% premium being paid for Baker Hughes, “a company that has been a consistent under-performer in the oil patch”, is surprising. Although Halliburton has offered to generously divest, some investors feel that the DOJ may spring at the oil giant’s goodwill to force it to get rid of even more. Worldwide, there is widespread belief that the oil price drop is yet to finish, potentially leaving Halliburton even more vulnerable. Combined, this is too much for investors that are already backing away from high-risk gambling in the crisis-ridden oil sector.

Related: Baker Hughes Loses Petrobras Contracts to Halliburton, Forced to Cut Workforce

4. Stuck in the Number 2 Position

With a market capitalization of $122.6 billion, Schlumberger still outpunches the new gestalt entity as Halliburton is worth $47.65 billion and Baker Hughes weighs in at $26.6 billion. One of the main reasons Halliburton has given for its acquisition of Baker Hughes was to better compete with Schlumberger, the worldwide oil services leader. This will certainly be a successful move in the Americas, where Halliburton already leads. Worldwide, this is a different story. For example, Schlumberger is in a better place to capitalize on increased drilling in the Gulf of Mexico and its partnership with Anton Oilfield Services has cemented its place in China. The new and improved Halliburton will still have a lot of catching up to do.

5. Management Teams Don’t See Eye to Eye

Last Friday, after days of intense speculation surrounding the deal, Baker Hughes CEO Martin Craighead threw a spanner in the works by issuing a letter stating that his company might well be open to other bids, beyond Halliburton. This was interpreted in various ways but the most sensible reaction was that this was an eleventh-hour tactic to get Halliburton to raise its offer. Halliburton did not take kindly to this stonewalling and threatened a hostile takeover and to replace the entire Baker Hughes board. Over the weekend, things seem to have settled down and a buying price of $38 billion was announced on Monday. However, the integration of the operations of two oil services giants will require a lot of collaboration at the highest level and any lingering animosity will not help.

By Chris Dalby of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News