Halliburton and Baker Hughes’ $35 Billion Merger is Dead

[Smokin Joe]

Halliburton and Baker Hughes decide to terminate merger

The world’s second- and third-largest oilfield service companies, Halliburton (ticker: HAL) and Baker Hughes (ticker: BHI), announced the termination of their proposed merger agreement. The deal, which was worth $35 billion before the crash in commodity prices and $28 million yesterday before the announcement, met with heavy resistance from the U.S. Department of Justice, which felt the deal violated anti-trust concerns.

Bill Baer, the head of the DOJ’s anti-trust division, went as far as calling the deal “unfixable” and assailed the companies for proposing “the most complicated array of piecemeal divestitures and entanglements” he had ever seen. Baer and the DOJ felt the deal would leave an unacceptable number...

More at: http://www.oilandgas360.com/halliburton-and-baker-hughes-35-billion-merger-is-dead/?utm_source=Closing+Bell+Report&utm_campaign=ad21ded1e6-Closing_Bell_RSS_Campaign&utm_medium=email

[thackney]

Halliburton CEO Dave Lesar Speaks Publicly For First Time Since The Baker Deal Collapse
http://oilpro.com/post/24202/halliburton-ceo-dave-lesar-speaks-publicly-first-time-following-b
5/3/2016

And the Baker Hughes indigestion hasn't killed Halliburton's M&A appetite either. Management is reviewing bolt-on acquisitions to improve technology holes in the company's portfolio.

Dave Lesar said: "We are going to invest in those product lines where we're a little bit weak and we'll look at selective acquisitions to round them out."

Jeff Miller, President, explained that Halliburton is prioritizing M&A targets that can lower the cost per BOE for customers, saying: "there will be gaps here and there that say, hey, if we can put that to work in our system to drive a differentially lower cost per BOE, those are the things we want to spend money on." Technologies or platforms that Halliburton can weave into its portfolio to reduce cost/BOE seem to be its new focus for deal making.

And Christian Garcia, acting CFO, added: "We need somewhere around $1 billion to run the company, so we're carrying more than enough cash. Our use of cash is prioritized, first, with ensuring that we have the resources to take advantage of organic opportunities as they come. Second, the bolt-on acquisitions as well as any sort of ventures that we need to make to execute the strategy, cost per BOE strategy that Jeff laid out."

After Halliburton pays the $3.5bn termination fee to Baker this week and retires $2.5bn of M&A debt, the company will have $3.6bn of cash left. Reserving $1bn for operations leaves Halliburton with $2.6bn of dry powder to chase acquisitions, plenty in this deflated market.

[IsailedawayfromFR]

Halliburton and Baker Hughes decide to terminate merger

The world’s second- and third-largest oilfield service companies, Halliburton (ticker: HAL) and Baker Hughes (ticker: BHI), announced the termination of their proposed merger agreement. The deal, which was worth $35 billion before the crash in commodity prices and $28 million yesterday before the announcement, met with heavy resistance from the U.S. Department of Justice, which felt the deal violated anti-trust concerns.

Bill Baer, the head of the DOJ’s anti-trust division, went as far as calling the deal “unfixable” and assailed the companies for proposing “the most complicated array of piecemeal divestitures and entanglements” he had ever seen. Baer and the DOJ felt the deal would leave an unacceptable number...

More at: http://www.oilandgas360.com/halliburton-and-baker-hughes-35-billion-merger-is-dead/?utm_source=Closing+Bell+Report&utm_campaign=ad21ded1e6-Closing_Bell_RSS_Campaign&utm_medium=email

The oil service sector is being hammered much worse than the O&G operators.  This will impact the eventual re-emergence of industry as prices rise, as that is where the new technology was birthed on horizontal drilling/completions.  Service sector developed it, and operators paid for it.

Could be a longer ride to get going again once price rises.

[Smokin Joe]

The oil service sector is being hammered much worse than the O&G operators.  This will impact the eventual re-emergence of industry as prices rise, as that is where the new technology was birthed on horizontal drilling/completions.  Service sector developed it, and operators paid for it.

Could be a longer ride to get going again once price rises.

Yes, it could. The layoffs come fast in the service sector, and small businesses tend to be crushed by loss of business, more than global companies who take a hit, but have the depth to absorb the hit and still retain key personnel to train new people when things pick back up. Consider, too, the aging pool of highly qualified individuals, some of whom will have taken work out of the sector and will consider riding that to retirement, and the reticence to reinvest on the part of those who were not prepared for the rapid decline in the sector, and the run-up in available providers could be relatively slow.

There will, however be fierce competition between existing and still operating service companies, and the constant quest for that bit of tech or technique to gain an edge on the competition.

[IsailedawayfromFR]

Yes, it could. The layoffs come fast in the service sector, and small businesses tend to be crushed by loss of business, more than global companies who take a hit, but have the depth to absorb the hit and still retain key personnel to train new people when things pick back up. Consider, too, the aging pool of highly qualified individuals, some of whom will have taken work out of the sector and will consider riding that to retirement, and the reticence to reinvest on the part of those who were not prepared for the rapid decline in the sector, and the run-up in available providers could be relatively slow.

There will, however be fierce competition between existing and still operating service companies, and the constant quest for that bit of tech or technique to gain an edge on the competition.

Maybe you and I can ride a good ride during retirement once it perks back up.  I think thackney is still a bit too young to retire and may still have some in school.

[Smokin Joe]

Maybe you and I can ride a good ride during retirement once it perks back up.  I think thackney is still a bit too young to retire and may still have some in school.

That would be nice, but I have to find something to put beans on the table in the meantime.

[thackney]

I think thackney is still a bit too young to retire and may still have some in school.

Way too young, kids spread out from college to first grade.

@IsailedawayfromFR

[MajorClay]

I read somewhere that there are 2000 wells drilled but not completed. What is your guess on how long it will take to work through this backlog at $40 to 45 per bbl???

[Smokin Joe]

I read somewhere that there are 2000 wells drilled but not completed. What is your guess on how long it will take to work through this backlog at $40 to 45 per bbl???

Many DUC (Drilled but Uncompleted) wells are there because drilling services outpaced completion services.
The answer on clearing that backlog varies, partly because of the crash in prices and its effect on the oil companies, partly because in some areas rules have been modified to allow longer delays for completions. In most cases, I would expect the wells to be on line within a year.

The completion crews are catching up. After all, those wellbores are assets that aren't producing revenue.  Expect the operators (oil companies) to complete those wells which are anticipated to produce best first, and move to the ones which are anticipated to be less ideal later as they prioritize returns, barring any completions done just to hold leases by production.  Extensions have been granted in ND, for instance, to allow for more time to complete the wells.

More reading:

http://press.ihs.com/press-release/uncompleted-wells-eagle-ford-shale/large-inventory-drilled-uncompleted-wells-pose-oppo

http://seekingalpha.com/article/3832376-impact-duc-completions-2016-crude-oil-production

[IsailedawayfromFR]

I read somewhere that there are 2000 wells drilled but not completed. What is your guess on how long it will take to work through this backlog at $40 to 45 per bbl???

I believe the number is much larger than 2000.  It will not please the drillers when prices perk up and little drilling occurs.  the first capital will go toward the low-hanging fruit of completing DUCs.

Completion costs are approaching on average 1/2 the total cost of the well, so a lot of capital is required here.

And I do not think $40 to $45 prices is high enough to spark this.  Well above $50 is my guess, but it is only a guess..

[thackney]

DUC, DUC, Production Boost?
http://www.rigzone.com/news/article.asp?a_id=142070
December 14, 2015

States calculate DUCs on often incomplete data that is “massively oversimplified,” RayJa said. For example, Texas data would indicate there are more than 2,000 DUCs in the Permian basin.

But more typical estimates vary from 500 or so to more than 3,000 DUCs. And those numbers are expected to swell in 2016 if oil prices don’t incent operators to put the DUCs to work.

The key issue is what bringing these DUCs online will do to U.S. production. RayJa’s best guess, “with a very low confidence level” is that DUCs could account for 100,000 to 300,000 barrels per day (bpd) for 2016 production growth.

“Again, the actual DUC impact upon our U.S. oil supply model could be as low as zero and as high as 400,000 bpd next year,” RayJa said.

R.T. Dukes, research director at Wood Mackenzie in Houston told Rigzone that figuring DUCs in the thousands may be distortion of the true count because that total would include those that happen as part of the process of developing a single pad where several wells can get underway. So they’re a natural inventory for various plays, he said. Looking at the hard number of wells intentionally placed in the DUC stage is between 700 and 800.

R.T. DukesR.T. Dukes, Research Director, Wood MackenzieResearch Director, Wood Mackenzie
Completing those wells will probably spill over into next year. However, WoodMac said that even when they’re at peak production – estimated between 250,000 to 350,000 per day – it won’t be enough to move the market.

To get started, it would take between three and four months for the inventory to come online, Dukes said. Plus the significant investment to bring DUCs online would be a considerable blow to capital expenditures (CAPEX) when most companies are cutting back.