Halliburton, Baker Hughes Cooperating on U.S. Frack Probe

Halliburton Co. and Baker Hughes Inc., two of the largest providers of hydraulic-fracturing services, said they are cooperating with a U.S. Justice Department antitrust investigation related to the fracking market.

Halliburton received a Civil Investigative Demand from the department during the second quarter and is in the process of providing responses, Beverly Blohm Stafford, a spokeswoman for the Houston-based company, said in an e-mail today. Baker Hughes got a May 30 demand from the department, covering the prior two years of information, the Houston-based company said in a regulatory filing yesterday.

“We understand there have been other participants in the industry who have received similar correspondence from the DOJ, and we do not believe that we are being singled out for any particular scrutiny,” Stafford wrote. Schlumberger Ltd. declined to comment on whether it is part of the probe. Closely held FTS International Inc. hasn’t been contacted by the Justice Department, Pamela Percival, a company spokeswoman, said in an e-mail today.

Booming North American oil and natural gas production has been spurred by the use of fracking to access hydrocarbons trapped in shale formations. The pressure-pumping technique involves blasting water mixed with sand and chemicals underground to free the oil and gas. The U.S. fracking market, the world’s largest, peaked in the second half of 2011 as prices soared with surging demand from the shale boom.

Price Drop

The department confirmed today its antitrust division is investigating possible anticompetitive practices related to hydraulic fracturing processes.

Baker Hughes fell 0.6 percent to $47.46 at the close in New York. Halliburton declined 1.1 percent to $44.34 and Schlumberger dropped 0.3 percent to $82.57.

With more equipment and competitors pouring into the market, as much as a 29 percent oversupply of equipment developed by the fourth quarter of last year, according to PacWest Consulting Partners LLC, a Houston-based industry adviser. Demand for fracking fell as natural gas prices slumped amid a supply glut, the consultant said.

“With 54 frack players in the U.S. market, probably half of which are new entrants in the last five years, the idea of a non-competitive market is absurd,” Alex Robart, principal at PacWest, said in a phone interview yesterday.

Prices charged for U.S. fracking services slid 14 percent in 2012 and are expected to fall another 6 percent this year, according to PacWest.

Surprising Move

The investigation is a surprise, Jud Bailey, an analyst at International Strategy & Investment Group in Houston, said in an interview yesterday. He expressed doubt about investigators’ ability to prove antitrust activity.

“It doesn’t seem to hold much water,” said Bailey, who rates Baker Hughes the equivalent of a buy and doesn’t own the stock.

Baker Hughes said it can’t predict what action, if any, might be taken in the future by the Justice Department or other government authorities because of the investigation.

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