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Halliburton keeps ‘bread and butter’ to secure Baker Hughes deal

🕐 3 min read

HOUSTON _ Halliburton is cutting closer to the bone to secure antitrust approval for its merger with Baker Hughes.

The assets the companies announced for sale Monday include businesses essential for building new wells and controlling the flow of oil. They’re among the last layers of overlapping units the companies can afford to cleave off without hurting the deal’s value, analysts say.

“They’re trying to keep their bread and butter,” said Rob Desai, an analyst at Edward Jones in St. Louis. If antitrust regulators continue to push for more divestitures, and as the companies move closer to the deadline they set for completing their merger, “I think that’s when you’ll start to see them at least explore getting rid of some of their more bread-and-butter lines. But I don’t think they’re there yet.”

The joint announcement provided the first details on asset sales Halliburton said in July it was proposing to global competition regulators. Where there is overlap between the two companies, generally the smaller of the two businesses is being sold, Desai said Monday in a phone interview.

The world’s second and third-largest oilfield service companies also pushed back the timeline by three weeks for closing the merger, which was valued at $34.6 billion when it was announced late last year. The target is either Dec. 15, or 30 days after both certify compliance with U.S. Justice Department requests, whichever is later.

Halliburton is still below the $7.5 billion limit it set for total revenues of assets to be sold. The sales announced to date amount to $5.2 billion in 2013 revenue, the benchmark year the companies are using for the threshold.

After oil prices plunged by more than half since June 2014, those assets are expected to see their sales fall to $3.9 billion this year, according to Spears & Associates, a Tulsa, Oklahoma oilfield research consultant.

Baker Hughes is selling its offshore hydraulic fracturing business in the Gulf of Mexico, along with two vessels that carry the necessary gear to frack the wells and control the sand spilling from the oil-soaked reservoir under the seabed. Using fracking offshore to increase production is part of a broader industry-wide strategy to make billion-dollar deep-sea developments pay off.

Baker Hughes is also divesting businesses in Australia, Brazil, the Gulf of Mexico, Norway, and the U.K. that cement the offshore wells into place. However — a key detail — Baker Hughes is not selling its entire global cementing business, Desai said.

Halliburton will market a portion of its well-completions business that offers expandable liners that are used to hang pipe inside of other pipe and seal the well from leaks.

Lastly, Baker Hughes will offer the core chunk of its completions tools business, which provides equipment that helps control the flow of oil as the well is being readied for production. Leaving that business within the combined companies would have given Halliburton control of nearly half the market for completion equipment, Luke Lemoine, an analyst at Capital One Southcoast wrote in a note to investors last year.

The assets announced Monday are generally “down the fairway” for investor expectations and still “don’t cut into the muscle” for the deal’s ultimate value, Lemoine said.

“We think offshore cementing and completions are both attractive businesses with plenty of suitors,” analysts at Tudor Pickering Holt & Co. wrote Monday in a note to investors. The additional businesses up for sale are the “necessary blocking/tackling” for getting the deal done, they wrote.

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