Halliburton and Baker Hughes Merger: What a Drag

The merger that has been going on forever in the energy sector has been extended yet again.

The deal between Halliburton Company and Bakers Hughes is still hanging on by a thread as the regulatory authorities have extended their decision making process. The regulatory authority that has been causing problems in the current deal is ACCC – Australian Competition & Consumer Commission. The deal has not been completed solely because of the ACCC as it has extended the announcement of the decision to December 2015. The oil and gas major company had initially planned on finalizing and closing the deal before the end of the current year but due to the extension made by the Australian regulatory authority, the deal seems like quite a challenge for the company. A request by both of the energy companies have been made to the United States Department of Justice (DoJ).According to the request, they want the Department of Justice to postpone its review and close it as early as possible by the December 2015. The crude oil prices, since July of2014 have dropped by as much as 50% due to which all of the oil service providers have suffered with their share price and prices per gallons. In a year, the energy major has fallen as much as 21.51% and the other energy company that Halliburton is merging with Baker Hughes has dropped by 19.35%. The crude oil prices are not the only prices in the energy business that have fallen in a year’s time, the oil production levels has fallen significantly in that time period as well. Both the companies need to take advantage of economies of scale along with probably lowering average costs to manage their expenses and in order to cut costs. There is apparently a conflict of interest among the regulatory and the energy giants. As for the regulatory authority the deal brings an added responsibility of regulating the social benefits of the deal along with its cost while for the energy service providers, there’s a good commercial prospect. One of the energy service providers, Halliburton is considered as the second largest energy company while Baker Hughes is almost on the third. If the merger is a success, this could bring a huge new entity to the market that will be a major leader and it will decrease the shares of the smaller energy companies. On the trading session that was held on Monday, Halliburton’s stock increase by 0.92%, which added the company’s shares to the gainers list. During the session, the highest level to which the share price of the energy company was seen at $38.45 and $38.35 at the lower level.

Chevron Corporation Might Be In Trouble Due To Declining Crude Oil Prices

Due to the reducing crude oil prices, which are highly unlikely to hike up, might cause Chevron to opt for internal financing.

In a year, Chevron Corporation has fallen by at least 25% and it continues to fall further as the crude oil prices remain in a downtrend. For the longest time, the second largest United States based company in oil and gas has been known as the ‘dividend machine’ but considering the current scenario, it is debatable to call it such.

Along with being called the Dividend machine, the dividend for the oil and gas organization has constantly risen in the last 28 years. For all the years, that Chevron has been considered oil and gas giant because of its robust dividend was majorly due to the prices of crude oil.

The major reason for the company to keep increasing its dividends as per barrel range was the trade from $110 to $115. Since the price of crude oil has decreased, the scenario is likely to change. Since June 2014, the crude oil prices have fallen by as much as 50%.

Due to these falling crude oil prices, the corporation’s liquidity position is being threatened along with leaving the investors confused. Stockholders now are concerned with whether to conserve more in cash but that will ultimately reduce dividends. In a last 52 week, Chevron’s stock has fallen almost 25%. The Free Cash Flow of the corporation has been in red for the past five quarters.

The stock experts at The Street have predicted that the negative Free Cash Flow of the company would likely increase in the fourth quarter of the current fiscal year. Another option for it would be to take loans in order to pay dividends but threats and problems might arise in the future because of borrowing money.

Additionally, according to news, the United States Federal Reserve is also expected to increase the interest rates. An increase in the interest rate would ultimately cause the US dollar to hike up due to which debt servicing could become expensive. However, in the past one year, the debt has increased by 39%. Furthermore, in terms of remedies, the Chevron can even look at its own asset sales, cutting costs via reducing its capital expenditures and downsizing employees.

As mentioned in the company’s earnings report for the third quarter, Chevron stated that it would keep the capital expenditures at a price of $25 billion to $28 billion, which is a decline of 25% in comparison to the same quarter last year. In the year 2017 and 2018, the capital expenditure of the oil and gas giant is estimated to be $20 - $24 billion.

Exxon Mobil Corporation Going Down, Dow Jones (DJIA) Reports

As the world oil rate decreases from $100 per barrel to $50 since April last year, it rendered some of the Exxon projects worthless with no profit at all. After facing a downfall, they are going to alter the company’s spending by 12% to $34 billion.

Exxon Mobil Corporation is on the verge of poor performance. Exxon Mobil stock, going downwards 4.6 percent per share, is experiencing the worst loss in a day after August 2011.

Exxon was 4.8 percent down in July, whereas Chevron fell by 8.3% in the same month. Collectively, over this year Exxon Mobil shares are 14% down, a great fall for any company to recover. Wall Street anticipated earlier on Friday about quarterly earnings that the oil company will be seen down.

The CEO and Chairman of Exxon Mobil, Rex Tillerson, states about the variation of their company, "Our quarterly results reflect the disparate impacts of the current commodity price environment, but also demonstrate the strength of our sound operations, superior project execution capabilities, as well as continued discipline in capital and expense management.”

The huge drop in crude oil rates also affected the results of Chevron, the oil producer. John Watson, Chevron’s CEO, clearly stated about the financial position of the company in a statement, "Second quarter financial results were weak, reflecting a crude price decline of nearly 50% from a year ago."

Their fast running business was seriously cracked by the fall of oil prices turnovers, which brought out massive destruction to their reputed business. Mr. Watson acknowledged about the improvement in refining, purification, and processing of crude oil, which can give the best financial support by saying that, "Downstream operations continued to deliver strong financial performance, reflecting both high reliability and improved margin."

One of the best and superior oil organizations, Shell, announced yesterday that they have downsized around 6,500 workers, as they are facing a fall in their revenues because of continuous fall in oil rates.

All oil majors in industry are experiencing disruptions in their earnings, which resulted in thousands of jobless workers. These companies have started reviewing their criteria by adjusting their techniques to pull even more oil and gas out of wells, to collect the quantity by which they can cover up their losses or expenditure at least.

It is necessary to bring a quick responsive change in their strategies because industry officials do not expect energy prices to be accelerated anytime soon. At an official meeting last week, Exxon Mobil CEO said about the falling rates, “the low prices are going to be with us for some time."

After the recession in oil prices, the Exxon Mobil stock market also brings the decrease in valuation, as the company is returning money to its shareholders continuously.

Exxon Mobil Subsidary To Be Acquired By Hilcorp In Cook Inlet

Hilcorp Energy is continuing its aggressive push into Alaska’s oil and gas industry.

Hilcorp Energy has snapped up a deal with Exxon Mobil’s (NYSE:XOM) subsidiary division in Alaska for the purchase of the world’s largest oil and gas major’s Cook Inlet assets located in northern Alaska. Houston-based, Hilcorp is planning to buy two offshore platforms from Exxon Mobil subsidiary, XTO Energy, in addition to a tank facility and other offices in the island of Nikiski located in the Kenai Peninsula. The new asset facilities are located at Middle Ground Shoal Gas Field, owned by XTO Energy.

The deal represents another avenue for growth for the Hilcorp in the remotest US state region. After setting foot there four years ago, the business has seen its growth by leaps and bounds, and in that process made it the largest producer of oil and gas in the region in Cook Inlet. It further flexed its muscle by acquiring some fields from BP for its North Slope oil and gas business. It also had acquired two other facilities from BP for a 50% stake, bringing the total value of the deal at $1.5 billion.

Hilcorp says that they expect the latest round of acquisition to be finished before the end of this year, most likely around the fall, subject to regulatory approval. Once that is achieved, the energy company is expected to make an offer of employment to all of its more than 30 employees who work in the Middle Ground Shoal facilities.

This is not the first transaction by Hilcorp of XTO Energy’s assets, though. It acquired the company as a whole, five years ago, as part of more than $30 billion deal, though it did not acquire the company all in one round. Sueann Guthrie, who is the media advisor for the Fort Worth-based company, says that the move is seen as part of meeting the company’s operational and financial objectives, though the contents of the deal are still confidential.

On the other hand, Kim Jordan, Exxon Mobil Alaska public affairs coordinator, believes that the transaction will not influence the company’s LNG consortium project in Alaska, a $50 billion joint venture project that will see Exxon partner with state, as well as other local companies, to tap into the North Slope oil and gas reserves. The coordinator also confirmed that the transaction would be completed later this year, probably around the last quarter of this year.

Exxon Mobil’s stock price ended the day at $82.53, a decline of more than 0.70% the previous day.