Checking Out Halliburton's Auction Process With Oppenheimer

In a report published Wednesday, Oppenheimer analysts maintained an Outperform rating for Halliburton Company HAL.

In the report Oppenheimer noted, "Halliburton announced that it is separately auctioning the company’s fixed cutter and roller cone drill bits, directional drilling and logging-while-drilling (LWD)/measurement-while-drilling (MWD) businesses. While it is no surprise that these businesses are on the auction block, the timing suggests that things may be moving along quicker than we expected."

The analysts expect several "speed bumps along the way," although the process is likely to be completed by end of the year. "We view the directional drilling/MWD/LWD auction as most important strategically as Halliburton (and Schlumberger) seek to preserve a de facto duopoly in international markets," the analysts added.

Although the company is marketing these businesses separately, suitors are free to bid for all the assets or packages of the assets. The analysts expect drill bits to be sold together, since roller cone and fixed cutter bits are manufactured in the same facility and share support functions. Directional drilling and MWD/LWD could either be sold together or separately, in parts.

The announcement marks round one of the process of asset divestitures. "Later asset sales are likely to include offshore stimulation vessels (we estimate $50M-$250M) and potentially some combination of completion equipment ($0.5B-$2B)," the report mentioned.

Completion equipment is complex, since several sub-product lines are included in it, with there being stiff competition for plugs, packers, sleeves and liner hangers.

The analysts expect drill bits to be sold at around $1.5 billion to NationalOilwell Varco, Superior Energy Services, private equity or large industrials, like GE. "Directional drilling and MWD/LWD businesses could bring in roughly $5 billion from land drillers, industrials, Superior Energy, NOV, Weatherford or private equity," the report said.

There could be news related to assets sales over the next few weeks. "Meanwhile, HAL continues to work with the Department of Justice into mid-summer on further divestment requirements. After satisfying the DoJ, Halliburton will focus on international anti-trust issues (EU, Brazil?) and potentially close the deal in Q3 if all goes smoothly," the analysts added.