Halliburton shares 2015 acquisition, refrack plans

Halliburton executive's take on its major merger and the future of its refrack plans, including the reason why it sought outside capital for future refracks.
By The Bakken Magazine Staff | August 20, 2015

The merger of two energy service giants—Halliburton Co. and Baker Hughes Inc.—will not take place until at least Nov. 15, following an agreement by both entities with the Antitrust Division of the U.S. Department of Justice. According to the companies, timing agreements such as the Halliburton/Baker Hughes merger are normal with large, complex transactions.

The original announcement that Halliburton would acquire Baker Hughes for roughly $35 billion came in November last year. The combined company will maintain the Halliburton name and its current Houston headquarters. Dave Lesar, chairman and CEO for Halliburton, will continue to lead Halliburton.

Both companies have a huge presence in North Dakota, specifically in Williston, Minot and Dickinson. Earlier this year, Halliburton announced it would move its field offices out of Minot to other areas in North Dakota. Baker Hughes still has an extensive field office in Minot.

For Lesar, the merger will “create a bellweather global oilfield services company,” and the transaction will combine the companies’ product and service capabilities to deliver an unsurpassed depth and breadth of solutions to its customers.

The success of Halliburton or any other energy services firm may not come easy this year. During the company’s second quarter earnings call, Lesar called the current market the toughest he’s seen. “We believe many of the smaller service companies are operating at below cash breakeven costs,” he said. For Lesar, there are three types of companies this year: those that are making a profit, those covering cash costs and those operating at a loss. Lesar said Halliburton may be one of the only firms to be making a profit.

For the second quarter, total company revenue declined by 16 percent, a number the Halliburton executive team compared to the 26 percent reduction in the worldwide rig count. North American revenue for Halliburton was down 25 percent. “While North American rig count declined 40 percent, our stage count declined less than 10 percent. Therefore, we believe that a customer flight to quality emerged during the quarter and this gives us reason to believe that pricing declines will begin to decelerate,” he said.

Halliburton has infrastructure and service equipment that is well above industry needs. According to the global energy services firm, roughly 40 to 50 percent of all service equipment has been idled. The slowdown in activity has created a unique new cycle in service intensity. Since 2013, the average well site has doubled and pressure pumping has dramatically increased. Although bigger jobs mean more revenues and better equipment utilization for Halliburton, there is a downside. “Larger completions are taking their toll on pumping equipment. In fact, these factors point to higher equipment attrition rates for the industry,” Jeff Miller, president, said.

The downturn in activity has also allowed Halliburton to retool and improve its maintenance schedules. The company is currently operating as efficiently as it has in company history. When a recovery in oil prices and activity does come, Miller believes North America offers the most upside and will recover the fastest.

While it waits for the recovery, the company has also made a major investment into a growing interest held by its clients: refracking. Most of the early horizontally drilled and hydraulically fractured wells were under stimulated, the company believes. “Though a relatively small market today, we see significant runway in the future [for refracking],” Miller said. “We anticipate that customers will begin to dedicate part of their annual spend to refracks.” Halliburton has secured $500 million from BlackRock Inc. to allow the company the financial flexibility to move on any  future refrack work that happens in the next three years.