Oilfield Services Notes: Baker Hughes-Halliburton Merger, Rig Count, Schlumberger’s Fine

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The oilfield services sector had another relatively news-filled week. While shareholders of both Halliburton (NYSE:HAL) and Baker Hughes (NYSE: BHI) voted in favor of the mega-merger between the two companies, Schlumberger (NYSE:SLB) agreed to pay about $233 million in fines for violating U.S. trade sanctions in Iran and Sudan. The PHLX Oil Service Sector (^OSX) index ended the week relatively flat at levels of about 190. On the macro front, benchmark Brent crude prices saw a moderate increase through the last week, owing to geopolitical tensions, with Saudi Arabia leading a military campaign against Yemen. In other news, Baker Hughes reported that the U.S. oil rig count fell by about 12 units through the last week to 813 units. The number marks the smallest weekly decline in the metric year-to-date. The oil rig count is down by roughly 45% since the beginning of this year and around 49% from its mid-October 2014 highs. [1] Here is a brief look at the news that mattered for the oilfield service stocks that we cover.

See Our Complete Analysis For HalliburtonSchlumberger |Baker Hughes

Shareholders Vote In Favor Of Halliburton’s Acquisition Of  Baker Hughes

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Over 98% of voting shareholders from both companies voted in favor of the $35 billion mega deal for Halliburton to acquire Baker Hughes at separate special meetings held by the two companies on March 27, bringing one of the largest deals in the history of the oilfield services industry a step closer to finalization. The deal is expected to close during the second half of 2015, subject to the approval of antitrust regulators and the sales of some business units and assets by both companies.  As noted before, we see the deal as being positive for shareholders of both firms. Firstly, the deal would allow Halliburton to better challenge industry leader Schlumberger in a market in which technological capability and geographic presence have been a key theme. (related: Why The Baker Hughes Deal Will Eventually Create Value For Halliburton Shareholders) Secondly, the combination would allow the companies to better navigate the current downturn in the oil industry as customers sharply curtail their upstream spending. We have a $48 price estimate for Halliburton, which is about 10% ahead of the current market price. We are modelling revenues of about $28 billion for 2015. Halliburton’s stock remained relatively flat at around $43 through the week.

Schlumberger Pleads Guilty to Sanctions Violations

Schlumberger has agreed to pay about $233 million for violating U.S. sanctions by doing business in Iran and Sudan. As part of a plea agreement with the U.S. Justice Department, the firm will pay a criminal fine of about $155.1 million and forfeit $77.6 million in related profits. According to officials, the oilfield services were provided by Schlumberger’s overseas subsidiaries, but the dealings involved some U.S.-based employees who also provided tech support to these operations. [2] We have a $95 price estimate for Schlumberger, which is about 15% ahead of the current market price. We are modelling revenues of about $43 billion for 2015. Schlumberger stock remained relatively flat at around $83 through the last week.

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Notes:
  1. Baker Hughes Rig Count []
  2. The Morning Risk Report: Schlumberger Shows Foreign Unit Sanctions Risk, WSJ, March 2015 []