Big Oil’s biggest critics may be outraged by the details of Halliburton Co.’s (NYSE:HAL) plea agreement with the Justice Department, announced Thursday, but Wall Street seems to be focusing more on another bit of news the company put out yesterday.
The controversial oil patch player admitted it destroyed evidence in connection with the massive 2010 Deepwater Horizon oil spill in the Gulf of Mexico. It agreed to pay the maximum allowable fine of $200,000, and to three years of probation, to settle the charges (the settlement also includes a $55 million “voluntary contribution” to the National Fish and Wildlife Foundation). Halliburton saw its stock price surge nearly 4 percent Friday in an apparent relief rally. The outcome of the Justice Department’s actions had cast a shadow over the stock, which now has cleared.
Yet Halliburton also offered shareholders what it clearly views as another treat: It proposes to buy back an additional $3.3 billion worth of stock, up to 8 percent of its outstanding shares, via a Dutch auction process at a price that could represent a premium to where it traded on Thursday.
There’s another reason to be bullish on the stock: New reserves of oil and gas are located in places that are difficult to access (like deep underneath the ocean floor or trapped in tricky shale rock formations), making the services of Halliburton and its rivals more valuable.
But that’s the long-term scenario. The fact remains that the proposed buyback is “aggressive” on the part of Halliburton, in the words of Moody’s Investors Service, which cut its outlook on the company’s debt to negative from stable, citing the Halliburton’s funding the buybacks by issuing debt. The result may be a company whose earnings per share look more appealing but whose balance sheet is less attractive.
Then there is Halliburton’s business. For now, oil and gas prices are under pressure, especially those of natural gas. There simply aren’t enough pipelines in the right spots to get it all to market. That puts pressure on Halliburton’s margins: More than half of its 2012 revenues came from fracking.
And oh yes, what does the Justice Department have its eye on now that it has wrapped up its business with Halliburton over the Macondo well disaster? That’s right – the Justice Department has begun an antitrust investigation into the fracking business, and Halliburton, along with rivals like Baker-Hughes (NYSE: BHI), has been asked to provide information.
Once you dig past the headlines here, there really isn’t all that much to celebrate, as one set of clouds on the horizon has simply been replaced by another.
