I have been talking about a potential BHI buyout for weeks, I guess I can forget it now...Mavis strikes again (has this person been right yet?)
Top Stories: Oil Services Notebook: Baker Options Jump
By Mavis Scanlon
Staff Reporter
5/6/98 6:14 PM ET
Merger chatter is in full swing in the oilfield service industry, with more talk than actual action among the majors in past weeks. But options activity involving Baker Hughes (BHI:NYSE) Wednesday indicates traders may be expecting some news on the company soon.
BHI's options Wednesday were telling a decidedly bullish story. More than 3,000 of the May 42 1/2 calls changed hands, sending the price up 5/8 ($62.50) to 1 1/8 ($112.50), and the May 45 calls, the furthest out-of-the-money traders could get in BHI's May options, were closing in on 1,000 contracts traded today.
The volume in these contracts is typical of traders anticipating a strong move upward in the stock, especially considering that the May options expiration is just seven trading days away.
Gary Flaharty, Baker's director of investor relations, declined to comment, citing Baker's policy of not commenting on market rumors. Baker gained 1 3/8, or 3.4%, to 42 5/16.
Baker has been a prime target of takeover rumors in the patch in recent months. Since the acquisitions of Dresser Industries (DI:NYSE) by Halliburton (HAL:NYSE) and Weatherford Enterra (WII:NYSE) by EVI (EVI:NYSE), sector observers have said a certain amount of pressure may be on Schlumberger (SLB:NYSE) to make a strategic acquisition and solidify its No. 1 position in the sector. Baker is the name that pops up as making sense strategically and operationally.
Baker's strength lies in its oil well drilling, completion and production products -- it manufactures a wide variety of drilling bits and specialized drilling systems, drilling fluids and equipment used to complete a well.
Baker recently announced second-fiscal-quarter net income of $79.3 million, or 46 cents per share, on revenues of just over $1 billion
*****
Will the real production-reduction number please stand?
Two recently released surveys show a wide discrepancy in OPEC's April production figures, the first month of so-called "production reduction" in world oil output. Bloomberg data show OPEC producers just shy of the 1.245 million barrel per day figure they pledged to cut back in March, while a survey released Wednesday by Bridge News shows a figure well below that.
Excluding Iraq, whose April production actually rose under the auspices of the oil-for-food deal, OPEC produced 26.3 million barrels per day, according to Bridge, a decline of 687,000 barrels per day over its February production. (The Bridge survey released Wednesday shows April and March production figures.) The Bloomberg data, released April 30, indicate that OPEC producers pumped 1.167 million fewer barrels per day over February, or 94% of the pledged cuts. In both cases, OPEC production remains well above its "new" quota of 27.5 million barrels per day, agreed to in November.
In late March, oil ministers from key OPEC and non-OPEC producing countries pledged to cut as much as 1.6 million barrels per day from world oil production, with the bulk of the cuts stemming from OPEC countries.
"Compliance is pretty good," says Steven Pfeifer, an international and domestic oil analyst at Prudential Securities in New York. He noted the just-released Dow Jones survey, whose figures more closely matched Bloomberg's than Bridge's.
But, in reality, "no one knows for sure," he says. "There's no official counting agency." OPEC typically will use a basket of estimates, including the Middle East Economic Survey and the soon-to-be-released figures from the Paris-based International Energy Agency.
Although the initial production-reduction announcement sent crude prices soaring over $17 per barrel, since then prices have settled back near $15, as the market absorbed the news. On Friday, crude spiked once more to $16.13 on speculation of additional cuts, but has been bobbing about this week back near $15, as the market showed its disappointment that no announcements were made. Crude oil for June delivery settled at $15.37 Wednesday, down 10 cents.
Pfeifer, who visited key OPEC producers shortly before the late-March production-cutback announcement, believes additional cuts will be announced before OPEC's June 24 full ministerial meeting, but hesitated to speculate exactly when. Unless analysts are convinced OPEC is making an effort to scale back production, OPEC's credibility will be further eroded when the cartel talks of further cuts.
The catch in the whole production-reduction deal is that there is really no policing, says Tim Evans, a senior energy analyst with Pegasus Econometric Group in New York.
"Normally there's a pretty good initial effort to comply," he says. "May production will get a little less scrutiny by the time those numbers come out," he added. "People will be looking toward the [full OPEC ministerial meeting] on the 24th." <Picture>
<Picture>
Staff reporter Dan Colarusso contributed to this story.
<Picture>
<Picture: WebConnect Network><Picture: WebConnect Counter>
<Picture><Picture>See Also
TOP STORIES ARCHIVE
<Picture>
ÿÿc 1998 TheStreet.com, All Rights Reserved.<Picture: WebConnect Network><Picture: WebConnect Counter>TOPÿÿ|ÿÿABOUTÿUSÿÿ|ÿÿCONTENTSÿÿ|ÿÿSUBSCRIBEÿÿ|ÿÿADVERTISEÿÿ|ÿÿTRADEÿONLINE |
