Mike Walker

Mike Walker
Contributor since: 2012
Hmmm - that extra 300K BOPD -- do you really think that Iran was holding it back from the market, or have they been pumping it all along to sell on the 'gray' market ? Just like what ISIS was doing . Of course they couldn't report it as officially sold - that would be admitting to violating sanctions.
It won't go cheap, but apc has such a great bundle of assets .
Including 35% of the Shenandoah discovery operated by Anadarko and 1BB oil in place.
APC ended the third quarter with only $2.1bn of cash on hand, which has eroded from $7.37bn at the end of 2014.
Ever heard of something called Tronox settlement ?
I doubt if the $3.5BB will offset a failed acquisition. Anyway still long BHI / short HAL and ready to make a few victory laps on SE's post when this deal closes.
I personally think APC should not have paid the $4BB to BP as settlement and taken the matter to court based on gross negligence by BP. Any oil company that unloads the well with a single pressure barrier between the reservoir and the surface (i.e. the Transocean BOP) is not operating as a responsible deepwater operator.
Very positive as big Macondo fine due to CWA penalties has been an overhang for quite some time.
Let the games begin !
Actually APA would not be a bad fit for APC. Retain the Permian acreage, the Eagle Ford acreage, Alaska and possibly the Canadian assets. Egypt could be divested post deal as well as North Sea. Major opportunities for cost reduction.
Look for APA to remain in play, if not by APC then by others as shareholders become increasingly disgruntled.
Obviously you are not a reservoir engineer, neither have you closely examined the breadth and scope of PXD's acreage position in the Permian.
PXD estimates that they have 50 YEARS of drilling locations, and that the 50 YEARS is based on no uplift from closer spacing, alternative producing horizons or new technology.
So a statement that the company's reserves will be in ruins by the end of the year is a joke.
Disclosure - long PXD, short OTM PXD puts
Just put this one away in your sock drawer, relax while you collect your 5% divi and open the sock drawer when it hits 120.
MSF
Long BHI / Short HAL is a popular arbitrage play based on the terms of the deal. You buy 1000 shares of BHI and short 1120 shares of HAL. The current spread as of yesterday was about $10500 based on 1000 shares.
When / if the deal closes HAL will issue 1120 shares of HAL for the 1000 shares of BHI plus $19 each BHI share. So all your BHI shares will be exchanged for HAL. You are short 1120 shares of HAL so those exchange shares cancel each other out. What's left is the $19 per share or $19000 for your long position that you paid $10500 for when you initiated the trade. Profit is the $8500 difference.
I dont need to worry about closing the position in the event of a successful merger, it will be done automatically.
If the merger fails (Shock's trade) then BHI will shed value, HAL will likely fall as well due to the $3.5BB cancellation payment and I will be scrambling to rescue a losing trade.
That is what makes a market.
Shock
Your article was about Australia so I commented. If you write an article about the EU / HAL / BHI I will do my DD accordingly.
The Australia Competition and Consumer Commission cannot by itself derail the merger because it has no jurisdiction outside of Australia. It can reject or impose conditions on the merger of only the local entities in Australia (Halliburton Australia / Baker Australia). In my opinion, this would have little consequence on the overall merger:
Australia is a tough market for Oilfield Service due to tough competitive environment, discounting and high regulation including draconian labor laws. Neither Halliburton or Baker is pulling a significant amount of profit out Australia. The tail is not wagging the dog.
If the merger in Australia was blocked, then Baker / Halliburton would likely decide to ringfence Baker Australia, exclude it from the merger and let the management of the of the ringfenced entity harvest it for cash at little overall financial loss since its current contribution is minuscule anyway.
It is telling that the ACCC has delayed its opinion until after the point in time where the DOJ will make their ruling. At that point the ACCC has little choice but to go along as the alternative will be the ringfence strategy outlined above, which would be a worse outcome to Australia then agreeing to the merger / DOJ conditions.
Disclosure - Long BHI/Short HAL and added to my position on the news Friday.
Despite the tone of the article that BHI should be evaluated independently, my take is that there are only three possible investment themes - all merger related.
A. You are long BHI because you are actually bullish on Halliburton post merger and want to pick up HAL with a discount.
B. You are in on the long BHI / short HAL arbitrage trade with the hope to pick up a nice % gain upon deal close late 2015 / early 2016.
C. You are predicting that the deal falls through and you are short BHI as BHI will fall in the event of a failed deal.
Of course BHI management must proceed as if they remain independent, but from an investment perspective - it's all about the merger.
The longer this goes on, the tighter the spring is wound, the more violent the correction. When even Iraq says they can't take it any longer - that really says it all.
Lousy. But no one is valuing these companies based on the current trough earnings. Not in the OFS space and not in the E&P space.
I will give you another (soft) reason for the merger to go through. Ego. This is Lesar's last major decision before he retires. He can either be known as the Halliburton CEO that pulled off the largest OFS acquisition ever, or he can be known as the CEO that pissed away $4BB for cancellation fees and acquisition activities. Which is more likely ?
I wasn't aware Halliburton's Sperry Sun (Mwd/Lwd) and Security DBS (Bits) were 'problems'. In fact they both have a decent reputation in the global market place.
FCF will improve in a hurry as soon as investment in the the mega LNG projects (Gorgon and Wheatstone) completes. The dividend is not in any risk and Cheveron will simply borrow to cover negative FCF in the interim.
Good time to add shares.
And what about LPI ? They have an extensive lease position in Reagan county that is smack dab in the middle of the primary Spraberry trend. Funny, but they never talk much about Spraberry potential in their conference calls or investor presentations.
Except for a few countries in the Gulf and Russia - I expect a significant production drop as drilling activity has been curtailed 50% or more. A few mega projects will reach the finish line as they are too far along to stop now. But everything else has been delayed or cancelled. This does not bode well for 2017 as international programs have longer cycle times.
Another informative article.
I had one question. During the Q&A of the PXD Q2 call, the analysts singled out Spraberry development and apparently PXD had concerns that at least their Spraberry acreage had undergone extensive vertical well development and further horizontal wells would need to be planned taking into account that there was at least some reservoir depletion from the vertical programs.
in your opinion, is this a serious issue when trying to calculate potential Spraberry locations and reserves ? Or is the recovery of the vertical wells just too small to have an impact on a horizontal program ?
Yes, this all the long BHI/short HAL hedge trade.
The other way to play HAL long at a discount would be buy BHI
Deepwater has an equivalent to higher cost/barrel compared to the best shale plays.
Technical risk for deepwater is higher (think BP's Macondo). Political risk is high as many deepwater provinces are in areas where it is difficult to do business (West Africa / Brazil). Time to development for deepwater five to ten years versus less than a year for the shale plays. This gives a big advantage to the shale plays on a NPV basis.
Actually this makes a lot of sense. The majors are winding down their major developments and will soon be wildly cash positive, even at these low prices. They can either buy back shares, sit on the cash, or go into very risky areas like the arctic - where costs will certainly be much higher than US Shale.
There are estimates that by 2020 the Permian will out produce both the Bakken and Eagle Ford so I would high grade the seven names to those with exposure to the Permian - PXD, APC and EOG.
So what is shale oil's equivalent to the "three-shale" sequence of Barnett-Haynesville-Ma... in natural gas?
In shale oil that appears to be Bakken-Eagle Ford-Permian.
I would argue that, of the three, the Permian is prime due to its vast vertical and areal extent and true multi-decade inventory. Bakken and Eagle Ford are good of course - but with more limited scope and running room.
For sake of clarity, the breakup fee is $3.5BB, payable by HAL to BHI in the case that the merger fails, not $2.3BB.
Disclosure - long BHI, short HAL taking the trade that the merger will happen at the terms the deal was originally struck, i.e. share swap at a ratio of 1.12 HAL to 1 share BHI plus cash of $19 each BHI share.
Thanks for the write up. I have the long BHI / short HAL arbitrage trade in my portfolio and expect the deal to close in H2 as per the original deal.
Wasn't aware that Anadarko had any exposure to the Bakken ?
Niobara (sic) ?
Ok so you are on the other side of the spread trade, long HAL and short BHI. That's what makes a market.
IMO, there are three scenarios that HAL could 'walk'
1. The barriers at the DOJ become too difficult to overcome
2. BHI will have given various warranties and conditions precedent as part of the sales agreement. If these have been breached to the extent that HAL believed they could 'walk' without paying the $3.5BB - then there may be a valid Board discussion on re-evaluating the merits of a deal.
3. The general equity or crude market totally collapses so that HAL's financing covenants are voided.
Evaluating the consideration based on trough earnings is not very useful as no company will sell itself based on trough earnings unless it is distressed, and BHI is not a distressed target.
Again Eurasia and BHI as target companies are not comparable -- Eurasia a commodity drilling contractor, BHI with embedded proprietary technology and genuine strategic synergies.
I just can't see Halliburton walking away from the BHI deal with $3.5 billion penalty plus probably another $.5 billion in deal costs already sunk.
EBITDA multiples are generally low in overseas OFS transactions, particularly if the target operates in a jurisdiction with significant political or compliance risk. Russia would fall into this category. So I would not agree with the author's thesis that the Eurasia transaction is in anyway equivalent to the BHI acquisition.
Am long BHI and short HAL at a 1.12 ratio and picking up more on a spot basis as the spread trade dips.
IMO - looks like a substantial short position has been built up by Einhorn, et al over the last weeks combined with some selling. Conditions are over sold.
Expect we see a move up as short positions unwind, particularly Papa Fracker (EOG) and Mother Fracker (PXD).