Baker Hughes: No cost cuts despite deal challenge
OREANDA-NEWS. April 28, 2016. Baker Hughes has not started to cut spending to align operations with the market downturn because of its merger agreement with Halliburton, a sign the firm remains bullish on the \\$35bn deal despite severe headwinds.
The US Justice Department (DOJ) on 6 April said it is suing to block the merger on grounds that it will eliminate competition, raise prices and reduce innovation. Both companies have said that they would contest the lawsuit, but Halliburton surprised many when it said last week it was delaying its full first quarter financial results until after the 30 April merger deadline. The delay was seen by some as a sign the deal may fail.
Baker Hughes, which released its earnings as scheduled, didn't provide further details other than to say that if the DOJ lawsuit and review by competition authorities extends beyond the 30 April deadline as expected the merger agreement will not terminate automatically. The companies may continue to fight the lawsuit or may choose to terminate the agreement.
"Baker Hughes cannot predict when, or if, the pending merger will be completed," the company said.
Halliburton, the second largest oil field services provider, announced the Baker Hughes deal in November 2014 as a way to catch up to top rival Schlumberger and offset the impact of falling oil prices. Halliburton has proposed a multi-billion divestiture package to satisfy antitrust concerns, but those have failed to satisfy federal regulators. By contrast, the DOJ in November 2015 approved Schlumberger's \\$15bn takeover of rival Cameron with no conditions.
"We don't think Halliburton would delay its first quarter earnings until after 30 April if it felt good about the likelihood of this merger eventually consummating," analysts at Tudor Pickering Holt (TPH) said following the delay.
Schlumberger cut 2,000 position and another 5,500 contact workers in the first quarter, while Halliburton shed 6,000 jobs. Baker Hughes didn't announce any cuts during the quarter.
Commenting on operations amid the plunge in crude prices to below \\$30/bl in the first quarter, Baker Hughes said it expects the North American rig count to fall by another 30pc in the second quarter as producers sharply lower their spending to conserve cash. The North American rig count dropped by 58pc from a year earlier in the first three months of the year.
The rig count number will stabilize in the second half of the year but "we do not expect activity to meaningfully increase in 2016," Baker Hughes said. Plus, a likely steady decline in non-US rig count because of "limited new projects in the pipeline," will offset any stability in North American activity.
The company's North American revenue declined by 59pc from a year earlier as activity fell through all product lines. But production chemicals, deepwater operations and artificial lift showed the most resilience. Latin America revenue fell by 44pc from a year earlier. Baker Hughes, along with Schlumberger and Halliburton, is scaling down operations in Venezuela to bring business in line with cash flow. European revenue fell by 32pc from a year earlier, while Middle East and Asia Pacific revenue fell by 22pc.
Capital expenditures in the first quarter fell 73pc from a year earlier to \\$86mn.
Baker Hughes posted a loss of \\$981mn in the first quarter compared with a loss of \\$589mn a year earlier.