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.

Chevron Corporation Is Contributing A lot To The Australian Economy

The relationship between Chevron and Australia is going fairly well, the future seems bright for both.

Australia is one of the places that are economically benefited directly or indirectly through various projects carried on by Chevron Corporation. The mega projects and activities that the company has carried out in Australia are Grogon Liquefied Natural Gas and The Wheatstone Projects. Along with these projects the corporation has made other investments as well; through these projects, investments and activities the economy has larger benefitted.

Chevron is considered as one of the major contributors and distributors of natural gas in the country. For the development of the corporation’s Gorgon and Wheatstone projects, it has committed over $45 billion from 2009 to 2014. The oil major had further provided major employment opportunities in the country which has largely contributed to the country’s economy as well. The oil and gas corporation has managed to hire over 19,000 employees from Fiscal Year 2009 to Fiscal Year 2014. In the same time span, over $1 billion have been invested in research and development in the region.

Furthermore, Chevron has also worked towards enhancing academic education and research in the country and has contributed over $53 million so that better education can be provided in the region. It has also invested in exploration activities; the amount contributed on this cause is $1.6 billion. Through this investment, the country was able to make 24 offshore discoveries.

According to the corporation, these investments and contributions will benefit Australia’s economy from 2009 all though 2040. It is likely to contribute over $1 trillion to the gross domestic product, which could be generating $32 billion to GDP annually and along with that it could also contribute to Federal Government with an amount of $338 billion in revenue. Over the period of time, these projects could generate as many as 150,000 full time jobs for workers which would mean there will be 5000 job openings in the country on an annual basis.

Once the Gorgon and Wheatstone project is fully operational, it has the capability of producing 550 joules of domestic day daily which would amount to 50% of the current domestic gas supply in Australia. It is quite evident from all this information that both Chevron and Australia aren’t letting this partnership go easily or any time soon for that matter.

On November 18, 2015 Chevron’s stock was being traded in the market for $92.21 which showed a change of 1.30%. For the next year, the company is forecasting earnings per share of -8.06% while having a current return on investment at 6.40%. The market capitalization of the gas and oil company is 171.32 billion and the current EPS is 4.60 with a price to earnings ratio of 20.03.