Alex Mills
By Alex Mills
As a cold front swept across the U.S. driving up natural gas spot prices last week, Halliburton and Baker Hughes agreed to a merger, and the U.S. Congress came within one vote of passing a bill authorizing the construction of the Keystone XL pipeline.
Natural gas prices have languished in the $3 per thousand cubic feet (mcf) range for most of 2014. However, the cold front started moving across the nation on Nov. 16, and temperatures plunged below freezing all the way to Houston in Texas and the southeastern U.S. Buffalo, N.Y. reported six feet of snow.
Natural gas prices at Henry Hub, a major trading location for spot purchases, closed at $4.23 mcf on Nov. 18 and trading at Northwest Rocky Mountain closed at $4.35. Highest prices were at New York City Gate at $10.13 and Iroquois (New England) at $7.48.
Crude oil prices remained flat in the $75 range for most of the week.
Merger News
Halliburton acquired Baker Hughes for $34.6 billion dollars on Nov. 17. The acquisition pulls together two of the three largest service companies in the oil and gas industry.
The purchase price amounts to $78.62 a share. Halliburton is paying an over 40 percent premium to Baker Hughes shareholders and offering significant stock in the combined company to get a deal done.
Baker Hughes shareholders will receive $19 a share in cash and the remainder of the consideration in stock at fixed exchange ratio of 1.12 Halliburton shares, giving them 36% of the stock in the combined company. Halliburton’s offer is 8.1 times consensus 2014 earnings before interest, taxes, depreciation and amortization (EBITDA).
“This brings our stockholders a significant premium and the opportunity to own a meaningful share in a larger, more competitive global company,” Martin Craighead, Chief Executive of Baker Hughes, said in a statement. “We envision a combined company capable of achieving opportunities that neither company would have realized as well – or as quickly – on its own, all while creating exciting new opportunities for employees,” Craighead added.
“Our stockholders know our management team and know we live up to our commitments. We know how to create value, how to execute, and how to integrate in order to make this combination successful,” Halliburton Chief Executive Dave Lesar said in a statement.
Halliburton expects that its merger with Baker Hughes will yield nearly $2 billion of operating synergies annually and will help the company increase its offerings to customers, while also boosting returns of capital to shareholders.
The new company will be the second largest oil field service company next to Schlumberger with $51.8 billion in annual revenue.
Keystone XL
On Nov. 17, the U.S. House of Representatives passed a bill that would approve the construction of the Keystone XL oil pipeline, which would transport Canadian crude oil to refineries on the Gulf Coast, but two days later the U.S. Senate fell one vote short of the 60 votes needed to send the bill to President Obama.
The legislation became entangled in a political battle between Louisiana Sen. Mary Landrieu, who is a Democrat and current chairwoman of the Senate Energy and Natural Resources Committee, and U.S. Rep. Bill Cassidy, a Republican who faces Landrieu on Dec. 6 in a run-off for the Senate seat. Cassidy was one of the sponsors of the House bill that passed by a vote of 252 to 161 with 31 Democrats joining all of the Republicans voting for the bill.
Landrieu fought hard to get enough Democrats to join Senate Republicans to reach the 60 votes needed, but she fell just one vote short.
Alex Mills is President of the Texas Alliance of Energy Producers. The opinions expressed are solely of the author.
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