Friday, February 27, 1998

Halliburton to absorb Dresser Industries

By CHRISTOPHER PARKES / Abilene Reporter-News

Dresser Industries, one of the oldest companies in U.S. oil exploration, is to be absorbed by a rival, Halliburton, in a $7.7 billion stock-swap deal which will create the world's biggest oilfield services group.

The link marks a further shift in a flurry of mergers and joint ventures spreading throughout the U.S. energy production and distribution sector.

The new company, with a combined market capitalization of more than $19 billion, will employ 100,000 and have annual revenues of more than $16 billion. It would have had an aggregate order book of $13 billion at the end of last year. Schlumberger, the industry leader relegated by the merger to second position in terms of sales, had revenues of $11 billion last year.

The effect on Halliburton's operations in the Big Country is uncertain.

What the merger means for rank-and-file job stability is unclear at this time, said Guy Marcus, Halliburton's vice president of investor relations. Marcus said there is a transition team that will be finding ways to make the company more efficient, but that the labor market in the oil industry is tight and there may very well be other positions for those who have been made redundant to assume.

"At this juncture, it's impossible to tell what kind of changes there will be," Burton said. "We feel it will be only a modest reduction (in the payroll)."

Because of the companies' widespread interests, regulatory approval for the merger is needed from U.S. and European authorities and from several other countries. This is expected to slow the process, which is expected to be complete in the autumn.

Positive effects on earnings per share would appear in the first full year of operations, after a one-time charge to cover the costs of integration, said David Lesar, president and chief executive of Halliburton, who will lead the new company.

Under the terms of the deal, Dresser shareholders will receive one new Halliburton share for each Dresser unit. Halliburton is being advised by SBC Warburg Dillon Read and Goldman Sachs, and Dresser has retained Salomon Smith Barney.

Enriched by renewed enthusiasm for exploration after the recession of the early 1990s, oil services providers have spent heavily in recent years buying up small niche players to create full-service integrated businesses. While Halliburton is the more diversified of the two, Dresser, a specialist in drilling and construction of wells, pipeline and refinery project management, draws about two-thirds of its revenues from foreign markets.

Both companies produced strong earnings improvements last year, when the boom in U.S. exploration continued. Dresser reported earnings per share of $1.81 against $1.44, and Halliburton posted a rise to $1.75 from $1.19.

Arthur Andersen's latest analysis of data from more than 200 energy groups showed spending on upstream projects last year reached its highest level in real terms since 1988.

However, ample supplies of oil and the medium-term prospect of about 2 percent annual growth in demand have reduced investor interest in the sector. An unusually mild winter in some parts of the U.S. has also taken its toll on demand and on oil and gas prices.

Staff writer Scott Scholten contributed to this report.