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Halliburton’s Asset Sales and Cash Flows

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Halliburton’s new asset sales target

In September 2015, Halliburton (HAL) and Baker Hughes (BHI) announced that they would sell additional businesses in connection with the pending Halliburton-Baker Hughes merger. The new sales include:

  • Expandable liner hangers business from Halliburton’s Completion and Production segment
  • Core completions business belonging to Baker Hughes
  • Baker Hughes’s sand control business in the Gulf of Mexico
  • Baker Hughes’s offshore cementing businesses in Australia, Brazil, the Gulf of Mexico, Norway, and the United Kingdom

Earlier, in 2Q15, Halliburton announced the divestiture of its Fixed Cutter and Roller Cone Drill Bits, Directional Drilling, and Logging-While-Drilling/Measurement-While-Drilling businesses. All of these belonged to Halliburton’s Drilling and Evaluation operating segment.

Halliburton and Baker Hughes earned $5.2 billion in revenues in 2013 from all the assets under divestiture or to be sold.

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Asset sales can bolster Halliburton’s cash

Halliburton’s free cash flow (or FCF) increased 71% to $664 million in 2Q15 from a year earlier. Higher operating cash flow and lower capex (capital expenditure) led to higher FCF. Halliburton’s asset sales, as discussed above, will increase its cash position and improve the company’s net debt.

More available cash typically helps companies to make acquisitions, repay debt, and pay dividends. Halliburton’s long-term borrowing did not increase in 2Q15 compared to 2Q14.

Update on DOJ’s enquiry on HAL-BHI pending merger

Investors should note that the final sale of these businesses as discussed above is contingent upon the closing of the Baker Hughes (BHI) acquisition, which could extend into 2016. This is according to Halliburton and Baker Hughes’s amended timing agreement with the Department of Justice (or DOJ), announced on September 28, 2015.

The timing agreement refers to the closing of the acquisition pursuant to the Halliburton-Baker Hughes proposed merger. In August, Halliburton had certified compliance with the DOJ’s second request for additional information.

Halliburton and Baker Hughes together account for 22.6% of the VanEck Vectors Oil Services ETF (OIH).

We’ll discuss Wall Street analysts’ recommendations and target prices for Halliburton next.

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