Halliburton Co is in talks to buy Baker Hughes, a potential acquisition that would unite two of the biggest oil field service providers in what would be one of the largest energy deals in years, Baker Hughes confirmed on Thursday.
It is not clear what price Halliburton is considering, but Baker Hughes ended trading on Wednesday with a market value of about US$25 billion.
Its shares surged 20 percent in late-afternoon trading on Thursday once the Wall Street Journal reported on the negotiations. Shares of Baker Hughes closed at US$58.75.
After the market closed, Baker Hughes issued a news release confirming it had engaged in preliminary talks with Halliburton about a deal.
“These discussions may or may not lead to any transaction,” it said.
Both companies have been affected by a slump in crude oil prices this year, caused in part by a boom in domestic energy production that has flooded the market with oil and natural gas.
The drop has been a boon for US consumers, who are paying lower prices at the pump, but it has caused some hand-wringing in the energy industry.
Investors fear that service providers like Baker Hughes and Halliburton might be forced to cut their prices, straining profitability.
Shares of both companies have been falling since the summer, when crude oil prices peaked. Energy analysts said a combined company would probably not have the power to raise prices for drilling, cementing and hydraulic fracturing because of the amount of competition around the world, especially with new service companies growing in places like China, South Korea and India.
The exception would be in areas requiring the highest levels of technology like the Arctic or the deepest offshore oil fields, where only the industry leader, Schlumberger, competes with Halliburton and Baker Hughes. Those areas might become less appealing for drilling anyway if oil prices continue to drop.
“They won’t have the market power to raise prices, especially now,” said Michael Lynch, president of Strategic Energy and Economic Research, a consulting firm.
Nevertheless, he said a purchase of Baker Hughes by Halliburton would be a big deal.
“It’s something like the 500-pound gorilla swallowing the 300-pound gorilla,” he said.
A spokeswoman for Halliburton declined to comment.
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