This document contains an agenda and analysis of the oil and gas field services industry and two companies within it, Baker Hughes and Halliburton. It includes a SWOT analysis of the industry, highlights of each company, pro forma financial statements combining the two, and an analysis of a proposed merger between Baker Hughes and Halliburton. The merger was blocked due to antitrust concerns that it would leave only two dominant suppliers in the industry. The document recommends against the merger, finding that it would result in a monopoly with less innovation and competition.
Introduction to Oil and Gas Industry from Upstream (Exploration & Production), Midstream (Transportation & Storage), to Downstream (Refining, Petrochemical, & Marketing)
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Investment and decision analysis for petroleum explorationHamdy Rashed
Investment and decision analysis for petroleum exploration is a subject that many explorationist, geologist, management accountant and finance manager likes to know about. This paper shows the major concepts of how investment, decision and project analysis is made for petroleum exploration in financial view that is based on cash-flow models and applying capital budgeting techniques per International Oil and Gas business, financial and contractual arrangement that impact on such analysis. This paper does not cover such analysis in technically view because it is out of specialization, but this analysis shall be made in conjunction with technical experienced staff.
Keywords: Investment and decision analysis for petroleum exploration, Project Analysis for Petroleum Exploration
Introduction-Alpha….. Betical PRINCIPLES of Petroleum Geology; Classification of fossil fuels as hydrocarbon resources and hydrocarbon producing resources; Oil/Gas Generation and Diagenesis; Types of Oil & Natural Gas Plays; Occurrence of Oil and Gas; umbrella terms given to petroleum: Conventional oil and Unconventional oil; Associated Gas and Non-associated Gas; In Situ Oil and Gas Resources versus Supply; Natural Gas Resource and Quality Types; Natural GAS; Oil and Gas Process; Oil/Gas Field Life Cycle; Oil Field Pyramid ; Giant Oil Field
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Investment and decision analysis for petroleum exploration is a subject that many explorationist, geologist, management accountant and finance manager likes to know about. This paper shows the major concepts of how investment, decision and project analysis is made for petroleum exploration in financial view that is based on cash-flow models and applying capital budgeting techniques per International Oil and Gas business, financial and contractual arrangement that impact on such analysis. This paper does not cover such analysis in technically view because it is out of specialization, but this analysis shall be made in conjunction with technical experienced staff.
Keywords: Investment and decision analysis for petroleum exploration, Project Analysis for Petroleum Exploration
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We are currently in the midst of one of the deepest downturns in the upstream industry in recent years. Challenging times are ahead for those looking to invest capital and grow their companies in this environment.
Petroleum Economics is all about the allocation of scarce resources. Investment capital is certainly that scarce resource at the moment. In this environment, companies are looking for people to develop highly advanced skills in upstream petroleum economic and financial analysis
Fiscal Risk Advancements in Petroleum ContractsYasir Karam
Study analysis of determination of fiscal risk implemented in several models of petroleum contracts, a study within licensing bid rounds contracting system of Iraq
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Some Facts About Oil, Gas Market in India-
The demand for Oil &Gas in India is on the rise due to its economic and population(skilled) growth year on year.
Indian Government has made provisions to attract private investment and to increase domestic production through various reforms in the Oil&Gas sector policies. The Government is keen to remove all the obstacles to investment and incentivize oil and gas sector on the lines of ease of doing business and promote the Make in-India initiative in Oil&Gas too.
Several private companies have emerged as important players in the past decade. It is a transparent and level playing field for Indian private/foreign investors and national oil companies — both enjoy the same fiscal and contract terms.
Investment opportunities in India lies in upstream, gas pipeline, CGD network, LNG Terminal, Petrochemical and Refinery.
To encourage private players and global oil companies, Income generated from storage and selling of Crude Oil in Strategic crude oil reserves has been exempted from Income Tax
Government announced the Discovered Small Fields Policy in March, 2016 for monetization of 67 discoveries thorough international competitive bidding.
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2. Agenda
● Industry analysis
● Company analysis
● Ratio analysis
● Weighted average cost of capital
● Pro forma statements
● Merger Analysis
● Recommendation
4. SWOT Analysis - Oil and
Gas Field Services
Helpful Harmful
InternalExternal
5. Concentration of Oil & Gas
Field Services
● Low
○ 4 largest operators accounting for less
than 30%of industry revenue.
○ An estimated 76.5% of industry
operators employ fewer than 20
people, and 94.6% employ fewer than
100 workers.
6. Capacity
● Specific factors driving demand for oil
and gas well drilling include:
○ Market prices of oil and gas
○ Production levels
○ Supply and demand for natural gas
○ Level of economic activity
○ Energy conservation measures
○ Alternatives to hydrocarbon-based
energy sources.
7. Stability of Cyclicality
● Highly Cyclical
○ A result of the industry being driven
by commodity demand and
corresponding price increases.
8. Price
● Low price of crude oil leads to lower
demand for services.
● The average industry profit margin is
projected to increase over the next five
years, and this trend will be driven by
persistent demand for high value-
added services.
9. Government and Regulatory
Scrutiny
● Regulation is heavy and increasing
○ Offshore oil drilling will likely
experience weak growth due to
stringent permitting for new drilling
■ Expansion to other countries
with less regulation
● Fracking regulations are continuing to
increase
10. Demographics
The industry’s geographic spread reflects that
of the Oil and Gas industry extraction because
of the driving demand and importance of oil
and gas field support services.
● According to recent data, the number of
experienced petro technical professionals
(including geologists, geophysicists,
petrophysicists, and petroleum engineers) fell
again in 2013, and is now expected to decline
until the end of 2016.
11. Environmental Influences
Technological advancements have enhanced
environmental protection
● The EPA issued the first ever federal standard
aimed at curbing the methane emission from oil
and gas industry by 40% to 45% to below 2012
levels by 2025.
● Younger generations are more environmentally
conscious
● Restoring old well sites and creating artificial
reefs.
○ Rig to Reef’s policy
12. Life Cycle
● Industry is mature
○ R&D focuses on improving techniques
and automation
○ Industry’s major players are well
established
○ Global need for energy results in stable
demand for industry services
13. ● Trends in rig counts are important to
investors in the oil and gas sector
● In recent decades, rigs have absorbed
new technological elements that
enhance their ability to operate in harsh
environments and reach oil at greater
depths.
Growth Assessment
15. Competitive Analysis
● High and Increasing
○ Contracts are awarded on a
competitive bid basis.
■ Price
■ Quality of Service
■ Operational and Safety
Performance
■ Equipment Suitability
■ Location of Equipment
■ Reputation
■ Technical Expertise
○ Land- more competitive
○ Offshore- large international
companies
● US Companies face competition
from bids abroad
17. Baker Hughes Inc. Overview
● Oil and gas drilling services provider founded in 1987 as a result of a merger between Baker
International and Hughes Tool Company.
○ Headquartered in Houston, TX
○ Employs 39,000 people
○ Operates in 80 countries
● Work side by side with customers to engineer reliable application-specific products and
services that create more value from the reservoir.
○ Deep water unconventional hydrocarbons
○ Production and water management
18. Halliburton Company Overview
● One of the World’s largest providers of products and services to the petroleum and energy
industries.
○ Headquartered in Houston, TX and Dubai, UAB
○ Employs 55,000 people
○ Operates in 70 countries
● Serves the upstream oil and natural gas industry throughout the life cycle of the reservoir.
○ Locating hydrocarbons and managing geological data
○ Drilling and formation evaluation
○ Construction and completion
○ Optimizing production throughout the life of the field
19. SWOT Analysis
Strengths
- High-Efficiency Drill Bit
Business
-Growth Strategy
-Increased Spending
● Nova Technology
Weaknesses
- Organization by
Product Segment
Opportunities
-Higher Oil Prices
-Lower Output from
Mature Wells
Threats
-Seasonal Storms
-Slow Production
-Competition
-Turbulence in Middle
East
-Renewable Energy
Strengths
-Extensive Market
Coverage
-High Level of Int.
Exposure
-Acquisitions
● Geo-Logic Systems
Weaknesses
-Incorporated in US
-KBR
-Revenue Dependent on
Drilling
Opportunities
-Higher Oil Prices
-Optimizing Production
-Shift to Natural Gas
Threats
-Geopolitical Instability
-Acts of Terrorism
-Regime Changes
-Downturns in US Economy
-US Environmental Changes
-Competition
BAKER HUGHES INC. HALLIBURTON CO.
20. DuPont Analysis
● Negative ROE is a result of a number of
charges due to the restructuring of both
companies.
○ ROE was positive in 2014
● Halliburton always has a high debt to equity.
● Using assets to highest capacity.
38. The Merger
● November of 2014, Halliburton entered into a contract for a cash and
stock acquisition of Baker Hughes.
○ Baker Hughes valued at $34.6 billion
● DOJ filed a lawsuit to stop the merger, claiming that it would leave only 2
dominant suppliers in the services industry.
● April 2016 both companies called off the merger because of opposition.
○ Baker Hughes now valued at $28 billion
○ Halliburton forced to pay $3.5 billion in breakup fees
39. Good and the Bad of the Merger
● Highly important for services companies to offer the lowest prices.
○ The merger will allow for Baker Hughes/Halliburton to be more cost efficient
● Good for Baker Hughes and Halliburton because it will allow them to
become financially strong
● Bad for the oil and gas field services industry because will result in a
monopoly takeover by Schlumberger and Halliburton/Baker Hughes
○ Result in lesser innovation and competition in the industry