Halliburton Stays Course as Baker Hughes to Change Post-Deal

Baker Hughes Has Options After Failed Halliburton Deal
  • `Our strategy has not changed,' Halliburton CEO says
  • Baker Hughes looks to be `more selective' in businesses

Halliburton Co. and Baker Hughes Inc. wasted no time making clear they will take different paths after the termination of their merger.

"Our strategy has not changed," Halliburton Chief Executive Officer Dave Lesar told investors and analysts on a conference call Tuesday. His statement came minutes after Baker Hughes wrapped up a separate conference call in which CEO Martin Craighead repeatedly said that the company was going to change its focus be "more selective" in where it does business.

Halliburton fell 4.2 percent to $40.29 at 10:49 a.m. in New York, while Baker Hughes slid 3.7 percent to $45.67.

Halliburton’s Plan

The $28 billion takeover was called off Sunday in the face of stiff resistance from global regulators over antitrust concerns. Halliburton’s Lesar blamed "elongated regulatory scrutiny" and the drop in oil prices for making the deal uneconomic.

While expressing disappointment with the failed bid, Lesar said he’s not backing away from more deals and still sees selective acquisitions as part of the company’s growth plan. Larger, more complicated mergers are struggling to get timely approvals, Lesar said.

Remaining a full-service provider continues to be key for Halliburton despite the downturn. "It’s way better to be in every basin with every product line," he said on the call.

Pulling Back

Baker Hughes, meanwhile, said it will simplify its organizational structure and pull back its pressure-pumping business to only two basins in North America to weather low prices. All other businesses will be reviewed as it looks for added cost cuts.

"Every product line has to earn its right," Craighead said.

More than half of the pressure-pumping equipment available for fracking in the U.S. is not being used, according to industry consultant IHS Inc. Prices charged for fracking, which blasts water, sand and chemicals underground to free trapped hydrocarbons, are estimated to have fallen as much as 40 percent since the downturn began in late 2014, IHS said.

There will be very little ability for fracking providers to force the sale of other associated services, known in the industry as bundling, over the next two to three years, Craighead said.

Outside the U.S. and Canada, the "asset-light" plan by Baker Hughes calls for offering certain of its products to local suppliers in select countries.

Growing its international business "doesn’t necessarily have to have Baker Hughes coveralls on all the rigs running these tools and instruments," Craighead said. "I just see it as a massive opportunity and we expect that we’re going to own that channel."

Halliburton announced the Baker Hughes takeover in November 2014 in a bid to better compete against industry leader Schlumberger Ltd. as oil prices first began to drop from above $100 a barrel. The oil services industry is operating at a loss in North America, home to the world’s largest market for hydraulic fracturing. Schlumberger lost $10 million in the U.S. and Canada, excluding taxes, during the first three months of the year.

Halliburton, the world’s largest provider of fracking services, recorded first-quarter costs of $378 million, or 44 cents a share, related to the Baker Hughes bid, according to a statement Tuesday. That’s higher than the $79 million, or 9 cents a share, acquisition-related costs in the final three months of 2015.

The second- and third-largest oil-service firms had set a deadline for the end of April to complete the deal or walk away. The U.S. Justice Department heard concerns from dozens of companies and filed a lawsuit in early April to stop the merger, saying it threatened to eliminate head-to-head competition in 23 products and services used in oil exploration.

The government ultimately concluded that the deal was "not fixable at all," David Gelfand, deputy assistant attorney general, told reporters Monday on a conference call.

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