By Selina Williams
LONDON--Shares in many of Europe's battered oil services
companies have risen on speculation that a tie-up between U.S.
giants Halliburton Co. and Baker Hughes Inc., in a deal valued at
$34.6 billion, would spur further consolidation in the sector to
mitigate slumping oil prices.
Shares of Saipem SpA, the oil-services subsidiary of Italian oil
company Eni SpA, have increased around 6% since the
Halliburton-Baker Hughes transaction first emerged on Friday. A
stake in the company is already up for sale. Eni said earlier this
month that it had hired Credit Suisse to study the options for
selling all, or a part of its 43% holding in the oil services
company.
French project management, engineering and construction company
Technip SA, U.K. engineer John Wood Group PLC, and underwater
engineering and construction specialist Subsea 7, also were among
those companies that have been trading higher since Friday, with
gains of 2.9%, 3.5% and 6%, respectively.
Even Norwegian offshore oil driller Seadrill Ltd., that has been
buffeted by sanctions in Russia where it had a big contract with
state-controlled Rosneft, saw its share price rise 1.8% in the same
period.
"The Halliburton deal is supportive for valuations following
what's been a rough year for oil-service companies given the drop
in oil prices," said Christopher Møllerløkken, equity analyst at
SpareBank.
By contrast, companies exposed to the U.S. shale industry, such
as Weir Group PLC, which supplies high-pressure pumping equipment
for unconventional oil and gas production, and firms in Europe's
overcrowded seismic sector, such as France's CGG and Norway's TGS,
fell back.
Shares in oil-service firms that help oil companies find and
extract oil and gas deposits by providing equipment like rigs,
drill parts, tools and engineering of pipelines and projects, were
already sinking before the oil price started falling this
summer.
This is because their customers--the oil companies--had started
shelving expansion plans for multibillion-dollar projects and
shedding operations with particularly tight profit margins, and
squeezing rates before the oil-price decline.
However, even though weaker share prices are making many
companies look attractive, a deal in the European sector would face
obstacles, said Neill Morton, oil and gas analyst at Investec.
Antitrust issues preventing dominance of any one sector could
hamper a deal. For example, the subsea construction and engineering
sector is dominated by three big companies, Technip, Saipem and
Subsea 7. Financial and cultural barriers, like different
languages, could also be an obstacle, he added.
Furthermore, the top executives of some companies have been
focusing on trying to manage the downturn in their business through
cost-cutting measures, such as the job cuts and factory closures
announced recently by Weir Group, and may be reluctant to consider
merging as a solution.
"Some companies could merge, but they can't afford others and
would have to do it on a share-for-share basis and it is hard to
reach agreement on that when management feels the company is
undervalued," said Mr. Møllerløkken of SpareBank.
Kjetil Malkenes Hovland in Oslo,
Eric Sylvers
in Rome and Inti Landauro in Paris contributed to this
article.
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