What’s Bad For America is Good for Halliburton:

Just ask the Vice President

The above headline from a Huffington Post article criticized former VP Dick Cheney, once the CEO of Halliburton.  The left’s disdain for this company is well known and documented.  It’s the ultimate symbol of evil for them.  A fossil-fuel company that gave the nation war mongering (their words, not mine) referred to VP Cheney and his Texas buddy President Bush that eagerly got America into a war in the Middle East.  President Obama has already driven a stake through the heart of coal, but the big prize has always been crude oil drillers.

Target In Sight 

The Obama administration has brought an antitrust action against the proposed merger of Halliburton (HAL) and Baker Hughes (BHI); starting the biggest oilfield services company where its fierce rival would overlap in too many markets and services.  

What the Justice Department didn’t acknowledge is that this is an industry in turmoil where the name of the game is survival. 

Crude oil has been in free-fall since mid-2014; as of now, rigs are being mothballed and bankruptcies are mounting.

One could simply look at share prices of the top oilfield services companies to understand the degree of carnage. This isn’t about bulking up to monopolize an industry…it’s about survival.

Top US Oilfield Services Co	Share Price June 2014	Shae Price April 2016
#1 SLB	$117	$73
#2 HAL	$65	$36
#3 BHI	$71	$42
#4 FLR	$76	$51
#5 WFT	$23	$7
#7 RIG	$45	$9
#8 NBR	$29	$9
#10 SDRL	$39	$3

 

Consider the four smaller American names in this global industry. They have seen their share prices decline on an average of 78% since June of 2014. Generally, the smaller the company is, the bigger the decline in the share price will be.

• Weatherford (WFT) -70%
• Transocean (RIG) -80%
• Nabors Industries (NBR) -69%
• Seadrill (SDRL) -92%

American Companies Unite

The Obama Justice Department frames its disdain for this deal as being unfair to competition, but it’s the notion of competition- that’s the main reason for giving it the thumbs up.  Revenue in North America is being crushed and its business outside the United States (OUS) might save these companies.  Last year, Halliburton’s operating income in North America tumbled by 86%. 

Halliburton Economic Trends	2013	2014	2015
Revenue	$17.5 billion	$20.3 billion	$13.7 billion
Revenue OUS	48%	46%	54%
Operating Income	2013	2014	2015
North America	$2.5 billion	$3.2 billion	$458 million
Latin America	$518 million	$431 million	$440 million
Europe/Africa	$690 million	$689 million	$523 million
Middle East/Asia	$865 million	$1.1 billion	$1.2 billion

For Baker Hughes, North America’s operating results slumped to a loss of $687 million from a gain of $1.5 billion.

Baker Hughes Economic Trends	2013	2014	2015
Revenue	$22.9 billion	$24.6 billion	$15.7 billion
Revenue OUS	52%	48%	59%
Rig Count	1,705	1,761	984
Operating Income	2013	2014	2015
North America	$968 million	$1.5 billion	-$687 million
Latin America	$66 million	$290 million	$134 million
Europe/Africa	$570 million	$621 million	$157 million
Middle East/Asia	$478 million	$675 million	$204 million

The economic damage from the War on Capitalism and Profit-Motivation is immense.   Yesterday, Halliburton and Baker Hughes said they would fight the administration, which comes as a relief after Pfizer (PFE) and Allergan (AGN) threw in the towel.

The Fed

Fed minutes from the most recent Federal Open Market Committee (FOMC) meeting, exposed a torn group of people seeing the same economic data through various prisms.  A lot of voting members were eager to hike rates but as the month endured, they became a bit more sheepish.  In the end, most members followed their dear leader Janet Yellen.

Voting for this action: 

• Janet L. Yellen
• William C. Dudley
• Lael Brainard
• James Bullard
• Stanley Fischer
• Loretta J. Mester
• Jerome H. Powell
• Eric S. Rosengren
• Daniel K. Tarullo.

Voting against this action:

• Esther L. George

The Fed will watch economic conditions, expected inflation, labor conditions, as well as global trends; but it remains committed to being informed by incoming data.

Today’s Session

Initial claims for the week fell 9,000 to 267,000 compared to the estimates of 270,000 making it 57 weeks below 300,000. The 4-week moving average, a better gauge, increased by 3,000 to 263,500. Last week, 2.4 million people entered or came back to the job market between September and March, representing the second greatest increase ever for a 6 month period.   As the job market strengthens, and new and discouraged people look for jobs, wage growth will likely remain stagnant. This data should help support the Fed’s policy to gradually increase rate. 

The markets are under some slight pressure this morning as oil is down and gold is higher.  We are going to keep our powder dry for now. 

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