Halliburton Trumps Expro, But $3.4 Billion May Be Just the Start of Bidding War for Deep-Sea Oil Exploration

By Jennifer Yousfi

Halliburton Company (HAL), the world’s second-largest oil-services firm, has made a $3.4 billion (1.71 billion pounds) cash offer for U.K.-based Expro International Group PLC.

The bid - announced today (Friday) - could touch off a bidding battle for the British oil-services firm, which already has another suitor.

The Halliburton bid represents a 6.2% premium over the $3.2 billion bid of a private-equity consortium that includes Candover Partners Ltd., a wholly owned subsidiary of Candover Investments PLC, and Goldman Sachs Group Inc. (GS).

"This is not over as I think Candover will come back with another bid," Jane Coffey, head of equities at Royal London Asset Management, said in a phone interview with Bloomberg News. "I expect then Halliburton to top Candover’s bid and become the winner, unless there’s another industrial player."

Surging demand for oil from developing economies such as China and India have pushed oil to record levels over the past year. Just this week, West Texas intermediate crude crossed the $135-a-barrel threshold.

With oil commanding such a high price, Halliburton and its larger rival Schlumberger Ltd. (SLB), have profited as oil-rich nations have turned to the oil-services firms for help with excavation and exploration, forgoing the assistance of international oil majors, in hopes of keeping a larger chunk of revenue for state coffers.

At the same time oil demand is skyrocketing, some of the easy-to-reach oil deposits are starting to dry up, forcing the oil majors to experiment with more-challenging and - and much-more costly - deep-sea drilling expeditions. Oil at $135 a barrel can cover the cost of hard-to-reach sites that were previously considered financially unfeasible.

Such heavy-hitters as Exxon Mobil Corp. (XOM), BP PLC (BP), Total SA (TOT), Chevron Corp. (CVX), ConocoPhillips (COP), and Royal Dutch Shell PLC (RDS.A, RDS.B), will spend a record $98.7 billion this year on exploration and production, according to Lehman Bros. Holdings Inc. (LEH).

And some of that almost $100 billion in exploration and production fees is bound to end up in Halliburton’s pockets. Expro is a leader in deep-sea oil exploration and the firm’s experience with underwater wells at levels deeper than 1,000 meters (3,281 feet) will be a nice complement to Halliburton’s existing services.

While the offer did not represent a firm bid, according to an Expro statement, many analysts feel the deal makes too much sense for Halliburton to pass up, even if Candover & Co. come through with a counter bid.

"The consortium is private equity, with returns that need to be made - the higher their bid, the lower their returns," Phillip Lindsay, an analyst with ABN Amro Holding NV, told Forbes. "I would say Halliburton is in a stronger financial position. I certainly think Halliburton could bid higher."

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