Antitrust Expert On The Halliburton, Baker Hughes Deal

May 26, 2015

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In a report published Monday, Morgan Stanley analysts mentioned the outcomes of their meeting with an antitrust expert on the deal between Halliburton Company (NYSE: HAL) and Baker Hughes Incorporated (NYSE: BHI).

In the report Morgan Stanley noted, “Although optically HAL and BHI will have significant share as a result of the merger, the expert we spoke with sees the downturn as a slight positive for the antitrust review, as it has decreased the potential for the merged entity to exercise market power due to the substantial capacity overhang that looks likely to persist over the near-and medium-term in US services.”

“While HAL’s preemptive marketing of its drill bits, directional drilling and LWD/MWD businesses is probably wise as it has potential to yield a better selling price, this will by no means dictate the extent of the DOJ’s required divestitures,” the analysts said. The entity will need to sell at least the preemptive divestitures in order to close the deal.

Quest has revised its subsea tree forecast, reducing order expectations for 2015 from 276 to 216, while modestly increasing its forecast for 2016 and 2017 from 333 to 350 and from 480 to 521, respectively. Tree installations are likely to see limited impact in 2015, with stable steady growth expected over the next 5 years.

A number of large projects are on track to be awarded this year, including Appomattox and Woodside’s Greater Western Flank. “Meanwhile, Quest has lowered the expected spend per tree, in line with our view that increased discipline around standardization will drive out costs, which would reduce equipment provider revenues, while improving margins and reducing delays due to higher project IRRs,” the report added.

“We also note that fiscal policy-driven upside could also meaningfully boost oil company IRRs, as highlighted by our European team,” the analysts said.