Halliburton + Baker Hughes: The Devil's in the Details #English

If the devil lies in the details when it comes to Halliburton making its acquisition of Baker Hughes work for stakeholders, so might the opportunity.

To see what customer perceptions reveal about the pending merger between Halliburton and Baker Hughes, we examined the latest customer satisfaction data from EnergyPoint Research through the lenses of two questions we have related to the transaction:

Will the merger improve the combined company's competitiveness versus the broader set of oilfield suppliers with which it will compete?

Will the merger improve the combined company's competitiveness versus arch rival Schlumberger?

To help answer these questions, we plotted the customer satisfaction scores of almost two dozen oilfield products and services in which both Halliburton and Baker Hughes compete. Scores of each company were expressed relative to the peer group average, indicating outperformance (+) or under performance (-).

This construct led to each product/service falling into one of four quadrants: i) a relative strength of Halliburton; ii) a relative strength of Baker Hughes; iii) a relative strength of both Halliburton and Baker Hughes (redundant strength), or; iv) a relative weakness of both Halliburton and Baker Hughes (redundant weakness).

As is shown below, the resulting chart comparing the two companies' customer satisfaction scores to their broader peer group across product/service lines yields the following results:

Halliburton's unique strengths lie in five categories: hydraulic fracturing, downhole cementing equipment, production chemicals (yes, you read it right), downhole motors, and intelligent sensors and controls.

Baker Hughes' unique strengths lie in four categories: drill bits, cements, cementing services, and perforating services.

Halliburton and Baker Hughes share strength in a single category: completion packers.

Halliburton and Baker Hughes share weaknesses in seven categories: drilling fluids services, measurement-while-drilling (MWD), rotary steerable systems, logging-while-drilling (LWD), directional drilling services, sand control services, and completion fluids.

There are an additional five categories that emerge as neither strengths nor weaknesses for either company (i.e., redundant and average). These are: sand control equipment, perforating guns, drilling fluids products, wireline logging, and proppants.

Note - Since the chart is dual-dimensional in nature, the list of products/service lines plotted does not include artificial lift, fishing tools and services, or others in which either Halliburton or Baker Hughes lacks, or effectively lacks, an offering.

Likewise, a chart plotting the two companies' customer satisfaction scores relative to those of Schlumberger yields the following results:

Halliburton's unique strengths lie in three categories: hydraulic fracturing, downhole cementing equipment, and downhole motors.

Baker Hughes' unique strengths lie in two categories: cements and perforating services.

Halliburton and Baker Hughes share strength in a six categories: drilling fluids, sand control equipment, sensors & controls, sand control services, completion packers and perforating guns.

Halliburton and Baker Hughes share weaknesses in ten categories: drilling fluids services, measurement-while-drilling (MWD), rotary steerable systems, logging-while-drilling (LWD), drill bits, wireline logging, proppants, directional drilling services, cementing services, and completion fluids.

While countless insights can undoubtedly be drawn from these charts, two in particular caught our attention. First is the realization that, to a greater extent than we originally thought, Halliburton controls its destiny when it comes to selling assets (should regulators require) that are duplicated across both companies. Why? Well, as we see it, the ability to keep the more competitive asset (by selling the less competitive asset) will always present itself. This optionality clearly has value.

The other insight that resonates with us is the fact that the deal appears to do more for "new" Halliburton's competitiveness versus its broader set of peers that it does vis-a-vis arch rival Schlumberger. We note the combined entity's total number of unique strengths relative to Schlumberger are about half that compared to the broader peer group. This suggests simply combining Halliburton and Baker Hughes won't be enough to fully compete with Schlumberger. That is, the new organization is going to have to get better as well.

The original source for this post can be found here.