Anticipated acquisition by Halliburton Manufacturing and Services Limited of PSL Energy Services Limited

Affected market: Support services in oil and gas production

No. ME/3015/07

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisdiction, third party comments, assessment and decision.

The OFT's decision on reference under section 33(1) given on 3 July 2007. Full text of decision published 12 July 2007.

Please note that square brackets indicate text or figures which have been deleted or replaced with a range at the request of the parties for reasons of commercial confidentiality.

PARTIES
 
Halliburton Manufacturing and Services Limited ('HMSL') is a UK subsidiary of Halliburton Company (Halliburton), a diversified energy services company. Halliburton's turnover from its UK operations in 2005 was US$2,013 million (around £1,003 million). Halliburton is headquartered in Houston, USA but operates globally with over 200 subsidiary companies.

PSL Energy Services Limited ('PSL') is a company specialising in the provision of process, pipeline and well services to the oil and gas industries. PSL is headquartered in Aberdeen but operates globally with numerous subsidiaries. PSL's UK turnover for the year ended 31 December 2006 was $84.3 million (around £42.6 million).

TRANSACTION

On 26 April HMSL agreed to acquire all the issued share capital of PSL for the consideration of US$256 million (around £128 million). The transaction is conditional on clearances from the UK, Norwegian and Azerbaijani competition authorities. The OFT's administrative target for a decision is 3 July 2007.

JURISDICTION

As a result of this transaction HMSL and PSL will cease to be distinct. The transaction satisfies the share of supply test under section 23 (2) (b) of the Enterprise Act (the Act) as the parties' combined share of supply in the UK for well intervention services exceeds the 25 per cent threshold.

The OFT therefore believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.

THIRD PARTY COMMENTS

There were very few concerns raised by third parties, with most third party comments addressed above. Two customer concerns raised were both qualified – one felt that the merged entity would look to increase prices following the merger, but also thought that there would be a number of alternative suppliers; the other expressed concern as to whether HMSL would continue to provide a full range of services currently offered by PSL, but also felt that there was strong competition amongst suppliers.

ASSESSMENT

The parties overlap in the supply of a range of services to support the development of oil wells, which the parties have suggested be grouped into three categories: pipeline services, process services and well intervention services.

Adopting a cautious approach our analysis is premised on the narrowest basis by considering each of the three services separately, but the lack of third party concern and impact on the outcome of the competitive assessment means that a definitive conclusion on a product frame of reference is not required in this case. In addition, although available evidence indicates a global geographic frame of reference, this analysis also looks at the impact of the acquisition on the UK.

The parties' post-merger share of revenue and contracts globally and in the UK in process services is below 20 per cent and therefore does not on a first look give cause for concern over potential unilateral effects. Whilst shares of supply for both pipeline services and well intervention services are higher, there are still a number of other suppliers for both types of service and bidding data shows that these suppliers have successfully bid against the parties for a number of major contracts. This bidding data also suggests that the parties do not often bid against one another for contracts in all three types of service, indicating that the merger would not represent the loss of a significant competitive constraint on either party.

Although responses from third parties indicate some barriers to entry may exist, assisted by growth of total UK revenues for all three types of service, there is evidence of entry in the supply of all three types of service, including one 'full-service' supplier. From evidence before the OFT, large customers are also in a strong negotiating position, with a significant share of the parties' purchases. Finally, no customers indicated that the merger would reduce their negotiating strength or leave them without a number of suitable alternative providers.

Consequently, the OFT does not believe that it is or may be the case that the merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

DECISION

This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.

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