Big Oil Is Not Beautiful

Big oil is Beautiful

In Detroit, there used to be the “Big Three” automakers, and in Houston, the “Big Three” of the oil services sector: Schlumberger, Halliburton and Baker Hughes. There will soon be no more than the “Big Two” after the announcement made on Monday, November 17, on the fusion of the last two. The new group will become world’s number one by revenue ($52 billion) after an operation worth $35 billion – a quarter in cash – conducted by the owner of Halliburton, Dave Lesar.

The man himself says he has “buff”. Successor to Dick Cheney, appointed Vice President of the United States in 2000 by George W. Bush, he suffered for fourteen years all the criticism against a company engaged in the Iraq war in 2003, accused of corruption in Nigeria, and partly responsible for the oil spill in the Gulf of Mexico in 2010.

Halliburton will have to respond to new attacks on his domination this time. The marriage will, in effect, created a group that will hold a 40% share of the global market (platforms, hydraulic fracturing, cementing wells, etc.)

Mr. Lesar wanted to reassure the anti-trust authorities, anxious to maintain competition in the sector. He was willing to give up $7.5 billion of assets – competitors have already shown signs of interest – to convince the Department of Justice. Some analysts remain skeptical, but the Texan boss is such a great believer on this one that he intends to pay a penalty of withdrawal of $3.5 billion to Baker Hughes for the breach of marriage terms.

A nice gain

The man has more ideas: Halliburton has approached its rival since 2005. Today it pays a high price for that merger to strengthen the valuable services for the exploitation of hydrocarbons shale booming in the United States. It will also generate the muscle to fight against Schlumberger on all major projects (increasingly technological) of “Planet Oil.” It is also attractive for the shareholders of Baker Hughes, who will pocket a nice gain, seeing that the share value increased from $59.89 to $78.62, and they will hold 36% of the new company.

A season of loud weddings therefore continues in the oil sector, although it is no longer in the league of mega-mergers of some fifteen years ago (think Exxon-Mobil, BP-Amoco, Total-Elf, Chevron-Texaco, Conoco-Phillips). The context is now more favorable to such marriage. After ten years of wild expansion, the big players decided to reduce their expenditure on exploration and production, which affects their suppliers. And the price of oil fell sharply in June, falling from $115 per barrel to less than $80. The consolidation of the oil services sector after the announcement of the merger of two American oil services could accelerate.

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