Halliburton’s To-Do: Shop Deals, Cut Workforce, Pay Federal Fine, Form Partnership

Pardon Halliburton Co. (HAL) if they seem a little busy at the moment.

The oilfield giant has lately been knee-deep in a U.S. Labor Department investigation, layoffs in North Dakota, a newly announced partnership with Palantir Solutions and ongoing questions over its $35 billion megamerger of rival Baker Hughes Inc. (BHI).

Most recently, Halliburton entered a strategic alliance on Sept. 22 between its software provider Landmark and Palantir Solutions. Neither company disclosed how much, if any, money might be invested in the partnership.

The companies plan to develop an integrated economic, planning and decision support framework aimed at making E&Ps more adaptable to change in market conditions and technical data. The goal is to create a different way of handling planning that supports decision making and improves the investment lifecycle management for companies.

Managing the dynamics of supply, demand and pricing globally requires companies to have a “real-time view of their businesses and how to manage the costs of hitting strategic objectives,” said Nagaraj Srinivasan, vice president, Landmark.

“The joint solution from Landmark and Palantir allows customers to manage costs, reserves and optimize their portfolio and investment decisions therefore driving overall business performance," he said.

Penalty Flag

In the Labor Department’s investigation, Halliburton was scrutinized after a multi-year examination of wage compliance in the oil and gas industry in the Northeast and Southwest.

Halliburton will pay nearly $18.3 million to 1,016 employees nationwide to address unpaid overtime.

The department said Sept. 22 its recovery from Halliburton was one of the largest recoveries of overtime wages in recent years.

Halliburton itself discovered that certain jobs were misclassified as exempt during a self audit, said Susie McMichael, company spokeswoman.

“The company re-classified the identified positions, and throughout this process, Halliburton has worked earnestly and cooperatively with the U.S. Department of Labor to equitably resolve this situation,” she said.

Investigators found Halliburton incorrectly categorized employees in 28 job positions as salaried and exempt from overtime. The employees, including field service representatives, pipe recovery specialists, drilling tech advisors, perforating specialists and reliability tech specialists did not receive overtime when they worked more than 40 hours in a workweek, in violation of the Fair Labor Standards Act.

The company also failed to keep accurate records of hours worked by these employees, the department said.

"The Department of Labor takes very seriously its responsibility to ensure workers receive the wages they have earned. This settlement will put millions of dollars where they belong—in the pockets of hardworking people and their families," said Thomas E. Perez, U.S. Secretary of Labor. "Employers who don't pay their employees the wages they have earned don't just hurt their workers, they undercut employers who play by the rules. That's why we work every day to help level the playing field."

Labor Pains

Labor issues continue to be an issue, though in a different context. Halliburton has had to cut its workforce in North Dakota because of business conditions.

The North Dakota rig count has fallen about 65% in the 10 months since peaking in October 2014. In the second quarter of 2015, Halliburton said North American revenues were down by 25% compared to the fourth quarter.

As rigs continue to fall and companies defer well completions, Halliburton said it has adjusted its workforce. Published reports have said the company reduced staff in the Williston Basin.

Halliburton considers the specific business and number of employees laid off competitive information and McMichael said it could not be made available.

“We are committed to ensuring separated employees are treated with dignity and respect,” she said. “Halliburton will continue to monitor the business environment and will adjust the size of our workforce to align with current business demands as needed.”

By the end of second-quarter 2015, the company’s North American revenue was $6.2 billion or about 35% of the way toward its 2014 tally of $17.7 billion.

In February, the company said it would lay off as many as 6,400 employees, about 8% of its then global workforce. The figure did not include a previous reduction in December of 1,000 employees.

Halliburton has since reduced its global headcount by almost 14,000 employees, or about 16% of its peak workforce of more than 80,000, McMichael said.

Merger Update

The Halliburton/Baker Hughes merger odyssey continued Sept. 21 as Weatherford International Plc (WFT) said it would offer debt and equity to raise $1 billion for acquisitions and general corporate purposes.

The move was widely seen as Weatherford’s entry into buying service lines that Halliburton and Baker Hughes are likely to divest. The market sent a humbling message in response to Weatherford’s announcement: investors dumped Weatherford shares and sent its price down by 17%.

The same day, the Switzerland-based company backtracked, saying it would not pursue the offerings.

“While investor interest was strong for this offering, we are unwilling to sell securities at prices that do not reflect the value we have created at Weatherford,” the company said in a new release. “The company continues on its resolute course of focusing on its core businesses and the efficiency of its operations.”

The company still intends to close the acquisition in late 2015.

J. Marshall Adkins, analyst with Raymond James, said Weatherford is likely out of the running for a bid on either company’s divestitures since it likely needs to raise capital first.

“After seeing the offering reversal, we suspect that Weatherford is less likely to be a bidder for Halliburton's directional drilling and logging while drilling/measurements while drilling (LWD/MWD) divestitures,” Adkins said.

On Sept. 8, Halliburton also quashed speculation that it would have to divest its fixed cutter and roller cone drill bits, directional drilling and LWD/MWD businesses to a single buyer. The company said the U.S. Department of Justice or other competition authorities have told it to do so.

“Halliburton is continuing to market these businesses separately and will be considering bids for each business from a variety of interested parties in the near future,” the company said in an SEC filing. While Halliburton noted it has not reached any understanding with competition authorities regarding the adequacy of the proposed divestitures, the divestiture processes are proceeding as planned.

Contact the author, Darren Barbee, at dbarbee@hartenergy.com.