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Halliburton, Baker Hughes chart separate futures

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Halliburton strategy ‘hasn’t changed,’ but Baker Hughes plans major shift

Two companies with deep roots in Houston’s energy economy on Tuesday laid plans for a future without each other in the uncertain world of oil field services.

Halliburton and Baker Hughes have ended a costly 18-month engagement, leaving Baker Hughes to make sweeping changes and Halliburton to pay a $3.5 billion breakup fee.

“Halliburton is continuing on the path they’ve always been on,” said Bill Herbert, an analyst at an energy-focused division of investment bank Piper Jaffray. “Baker is trying to reinvent itself. And frankly, it needs to.”

At Halliburton, the world’s second-largest oil services company behind Schlumberger, the breakup fee will take a bite out of the balance sheet, but otherwise executives said they expect to make few changes. The company’s red coveralls are a staple in the oil patch, and its workers are considered the best at hydraulic fracturing, or pumping water and sand into shale to unlock oil and gas.

Halliburton plans to use that business and its international reach to survive the downturn, then thrive during the recovery.

Baker Hughes, however, announced major changes. The No. 3 services contractor will now seek to find the profit it couldn’t get through size and scale by specializing in high-tech, high-margin businesses.1024x1024

CEO Martin Craighead said the company will remove its high-pressure pumping business from all but the two most profitable U.S. shale basins. Internationally, Craighead said, the company will seek to sell its equipment to local service contractors rather than maintaining its own infrastructure across the globe. He offered few specifics.

“We’re getting back to our core, which is innovation,” he said during a call with investors on Tuesday.

The future of these companies is critical to Houston, where they employ thousands of people. Around the globe, Halliburton employs more than 55,000 and Baker Hughes employs 39,000. Both companies have said they planned to cut workers if the merger failed, and would have almost certainly cut workers if the merger had gone through.

The deal that Halliburton and Baker Hughes walked away from was once valued at $35 billion, but when federal regulators sued to block the union, it couldn’t be closed on deadline.

Halliburton has come out of the deal relatively healthy. Its largest setback is that it won’t be able to narrow the gap between the size of its operations and those of industry leader Schlumberger.

“If we had been successful, adding the Baker Hughes assets would have given us that scale quickly,” Halliburton CEO Dave Lesar said on a Tuesday conference call. “But our strategy has not changed.”

Analysts expect Halliburton can pay the fee without incurring serious damage to its finances. The company reported it will still have $6.6 billion in liquidity after paying the fee.

That’s not to say the company hasn’t suffered from cheap oil. Halliburton on Tuesday reported a loss of $2.41 billion in the first quarter, including a $2.1 billion non-cash charge primarily for asset impairments and severance costs. It also booked $378 million in charges related to its failed acquisition.

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