Last November, Halliburton Company (HAL) announced the $36.4 billion acquisition of Baker Hughes Incorporated (BHI). The acquisition now requires HAL to sell several drilling business lines, including measurement while drilling (MWD) product lines.
The latest quarterly investor update HAL sheds some light on the strategy the company is taking with the BHI acquisition. HAL executives recognized the extremely competitive environment that is taking shape with lower commodity prices.
With a best in class service delivery platform, HAL expects to provide more efficient, more reliable well delivery and increased value through new technology improvements.
The timing of the acquisition along with the competitive environment may enable HAL to acquire more market share through:
- Improved supplier power for the combined entity
- In-depth basin and customer penetration across basins
- End-to-end service delivery for well evaluation and delivery
Dominating the US Shale Plays
Looking back at 2014 pressure pumping market data, the combined entity has 35% market share across the US market and there are several shale plays where the combined entity will prove strongest.
In 2014, HAL & BHI pumped 13M tons of raw sand, 740k tons of resin, and 780k tons of ceramic. Schlumberger (SLB), FTSI, and Weatherford combined pumped 11M tons of raw sand, 610k tons of resin, and 230k tons of ceramic. HAL-BHI merger strengthens the company's position in several key shale plays. In each of the areas below, we combine HAL and BHI market share.
Permian: HAL's 27% market share leads the Permian. There are numerous options for operators in the Permian - Schlumberger, Weatherford, FTSI, Patterson, C&J, and Frac Specialist to name a few.
Bakken: Due to the operator relationships, HAL's holds 38% of the market in the Bakken. Several of the larger Bakken operator rely on HAL services.
Marcellus: The Marcellus is a more diverse pressure pumping market. The combined company holds 19% market share. FTSI and Weatherford are the top pressure pumpers in the Marcellus.
Niobrara: HAL stronghold in the Niobrara is clear with a 69% market share. Once again, relationships with top operators allows HAL. Expect HAL to decrease in this market, especially with operators where 70% or more of their jobs were pumped by HAL and BHI.
What does this mean for Operators?
For 2014, the top operators by the number of horizontal well starts include: Chesapeake, Anadarko, EOG, Apache, and Devon.
With oil prices down and operators putting cost pressures on service companies, the HAL acquisition may be able to demonstrate operational efficiencies and technical excellence compared to other service companies. The time to full integration will be years away but is likely to happen much faster for the larger operators.
Expect HAL to be the premier pressure pumper while still attaining longer term contracts. There is some certainty here for operators but it will come at a premium.
We expect many operators to replace BHI with another pressure pumper to minimize the operator's dependence and potential risk due to the acquisition. This gives other vendors an opportunity but does not necessarily mean the vendor will be awarded business.
What does the acquisition mean for other Pressure Pumpers?
The landscape for pressure pumpers in US shale plays continues to change. In March, C&J and Nabors Completion & Production completed a $1.4 billion transaction to create a premier completion services company. The two companies pumped 2.5M tons of raw sand, 160k tons of resin coated sand, and 120k tons ceramic. The "New C&J" will have a strong presence in Permian, Eagle Ford, and Bakken.
Watch for regional pressure pumpers to gain ground outside of the top 3 shale plays, Permian, Bakken, and Eagle Ford. The regional pressure pumpers have more opportunity to gain ground on the large oilfield services.
For example, US Well Services is a top 10 pressure pumper in the Marcellus and Liberty Oilfield Services has 9% market share in the DJ-Niobrara.
The savvy pressure pumpers will use this acquisition to gain market share across shale plays. There is no doubt that HAL will show their strength and value; however, we expect HAL to lose some market share due to operator's buyer power and risk tolerance.
How will the proppant and sand suppliers react?
With the larger oilfield service companies gaining more power in specific shale plays, the longer term sand contracts are in jeopardy, if not already terminated.
Proppant and sand suppliers may have a few options:
- go direct to many operators
- seek longer term direct contracts with operators
- establish contracts with regional pressure pumpers
Going direct presents logistical challenges for the operators, so it may not be as feasible as companies would like to think.
Find oilfield service company market share, proppant trends, and more at http://www.energentgroup.com.