Mergers: Commission opens in-depth investigation into acquisition of oilfield service provider Baker Hughes by Halliburton
European Commission - Press release
Brussels, 12 January 2016
The European Commission has opened an in-depth investigation to assess whether the proposed acquisition of oilfield service supplier Baker Hughes by rival Halliburton would impede effective competition in breach of the EU Merger Regulation.
Both companies are US-based.
Commissioner Margrethe Vestager, in charge of competition policy, said: "The Commission has to look closely at this proposed takeover to make sure that it would not reduce choice or push up prices for oil and gas exploration and production services in the EU. Efficient exploration and production of oil and gas resources within the EU form an important element of our Energy Union strategy in terms of ensuring security of supply."
The takeover would bring together the world's second and third largest oilfield service suppliers, thus eliminating one of the three current main global competitors (i.e. Halliburton, Baker Hughes and market leader Schlumberger). The opening of an in-depth inquiry does not prejudge the final result of the investigation. The Commission now has 90 working days, until 26 May 2016, to take a final decision.
Halliburton and Baker Hughes supply a broad range of tools and services for drilling and evaluation as well as completion and production of oil and gas wells. Both areas include a wide range of specific product and service lines, namely:
- Drilling and Exploration: products and services that relate to the drilling of the wellbore and evaluation of the formation. This group includes at least eight individual product and service lines.
- Completion and Production: products and services that prepare the well for production, maximise the subsequent output and maintain the integrity of the well over its lifetime. This group includes at least twenty product and service lines.
Oilfield service markets are characterised by high technological and financial barriers to entry, leading to a market with only four globally active competitors with extensive portfolios: Halliburton, Baker Hughes, Schlumberger and to a lesser extent Weatherford.
The Commission's preliminary investigation indicated serious potential competition concerns in more than 30 product and service lines, both offshore and onshore. In particular, the investigation revealed that Halliburton and Baker Hughes seem to be close competitors, both in terms of tenders and in innovation.
Competition regarding tenders
Competition from smaller suppliers is limited in tendering proceedings, due to the importance of quality and reputation, especially for offshore projects. The Commission's preliminary view is that the conditions of competition differ in tenders for projects taking place offshore as compared to onshore due to greater complexity, more challenging conditions and higher running costs for offshore operations.
The investigation also revealed that only three suppliers are currently able to provide integrated services that run across many product and service lines, namely Halliburton, Baker Hughes and Schlumberger. The ability to offer such integrated solutions represents a significant competitive advantage, for cost saving reasons in particular. Therefore, the transaction would reduce the number of integrated service providers from three to two, which may lead to less choice and potentially higher prices for customers. Barriers to entry are particularly high for integrated services as a new supplier would need to enter (or expand into) a large number of product and service lines to be able to compete in tenders.
Competition regarding innovation
The Commission is concerned that a reduction of the number of competitors could reduce the incentive to innovate, especially given that Halliburton and Baker Hughes currently compete fiercely with each other in developing new products.
The Commission will now investigate the proposed acquisition in-depth to determine whether these initial concerns are justified.
Given the worldwide scope of the companies' activities, the Commission is cooperating closely with several competition authorities, including the US Department of Justice.
The transaction was notified to the Commission on 30 November 2015.
Companies and products
Both Halliburton and Baker Hughes are American publicly listed companies with headquarters in Houston.
Merger control rules and procedures
The Commission must assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.
The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has a total of 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).
In addition to the current transaction, there are five other on-going phase II merger investigations:
- the proposed acquisition of UK beverage can manufacturer Rexam by the US-Ball Corporation, with a decision deadline of 22 January 2015
- the proposed acquisition of office supplies distributor Office Depot by its competitor Staples, with a decision deadline of 9 March 2016
- the proposed acquisition of BASE Belgium by Liberty Global, with a decision deadline on 17 March 2016
- The proposed acquisition of Telefónica UK by Hutchinson 3G UK, with a decision deadline on 22 April 2016
- the proposed acquisition of the Greek gas transmission system operator DESFA by the Azeri state oil company SOCAR
Source: Europa.eu (Copyright European Commission)