Will revenue concentration increase for Baker Hughes-Halliburton?

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Revenues by geography

In the previous articles of this series, we discussed Halliburton’s (HAL) and Baker Hughes’ (BHI) operations. In this article, we will look into both of the companies’ geographic revenue split to find out why these two companies may have overlapping operations.

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In 3Q14, HAL generated 54% and 46% of its total revenues from the US and international (or non-US) operations, respectively.

Baker Hughes’ split was similar. In 3Q14, it recorded 53% and 47% of its total revenues from US and international operations, including the industrial services segment. US sales have turned out to be more important for both the companies in 3Q14 compared to 3Q13.

Why US revenues increased

The 22% growth in US operations in HAL are primarily due to higher rig counts in the US in the past year. During 3Q14, rig counts averaged ~1,903 versus 1,770 in 3Q13 in the US. The recent drop in WTI price has not changed the US rig count’s upward trend. HAL’s Middle East and Asia operations during 3Q14 also grew by 17.5% from the corresponding quarter last year.

BHI recorded 10.5% revenue growth in the US in 3Q14 over 3Q13. But its international revenue recorded a more moderate 5.5% revenue growth.

So, these two companies combined can lead to overlapping operations and concentration of risk of exposure to US shale and offshore. This can add to more regulatory risks, particularly the US anti-trust laws.

HAL has said that it can sell assets up to $7.5 billion, if required, to avoid anti-trust issues. You can read more about the transaction’s risks in Part 9 of the series.

From 3Q13 to 3Q14, Schlumberger (SLB), HAL and BHI’s industry peer, recorded ~18% US revenue growth compared to 5% revenue growth in its international operations.

SLB, HAL, and BHI are a component of the VanEck Vectors Oil Services ETF (OIH). SLB is also a component of the Energy Select Sector SPDR (XLE). Read more on Baker Hughes in Market Realist’s article, “Must-know: Baker Hughes and its 3Q14 earnings.”

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