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Canada's oil-field services business is increasingly jittery over weakening global oil prices. A Halliburton Co. takeover of Baker Hughes Inc. could help lessen at least some of the fears.

The two big Houston-based providers of energy services, which announced a $34.6-billion (U.S.) deal on Monday, compete in numerous countries, including Canada. Here, the sector has been losing traction as its customers sharpen their pencils on spending levels for 2015.

As fears grow over the potential for a lengthy commodity-price trough, executives with companies that offer drilling pressure pumping, well completion and a host of other services and technologies critical to boosting oil and gas production worry about cutthroat competition creeping in to maintain business.

A consolidated Halliburton and Baker Hughes would take at least one player out of the mix. It's not a done deal yet, as it is certain to attract scrutiny from U.S. antitrust authorities.

A big reason for the proposed transaction is the 30-per-cent fall in oil prices since June that has oil companies contemplating a short– to medium-term future with less drilling than previously envisioned. There's more than enough oil on the market right now with production on the rise – largely due to the fracking boom – and demand is flattening out.

"The main takeaway from the deal is consolidation within the North American fracking market, with Halliburton and Baker being two of the largest frackers. What that will do is create more discipline in the market, from a pricing perspective," said Jason Sawatzky, analyst at AltaCorp Capital Inc. "That's good for everybody. It's good for the Tricans and the Calfracs of the world."

And those companies need all the help they can get. Their shares have been hammered in the oil price meltdown. Since June, Trican Well Service Ltd. is down by nearly half and Calfrac Well Services Ltd. has fallen 30 per cent. Another in the Canadian fracking segment, Canyon Services Group Inc., is down 40 per cent.

The combined U.S.-based company would be similar in size, in terms of the horsepower of their equipment in Canada, as Trican or Calfrac, according to Mr. Sawatzky's estimates.

Another potential benefit is manpower for a Western Canadian industry that has often complained of shortages. Halliburton said it will look for cost savings of $2-billion. The merged company could also divest businesses that generate up to $7.5-billion in revenues, if it is required by regulators, though that number is likely to be smaller.

It will undoubtedly mean job cuts, and some of those could be in Canadian operations, providing workers for competitors. Of course, that's only a positive if market conditions rebound.

A Halliburton-Baker Hughes deal gets investors wondering about the potential for Canadian mergers and acquisitions, especially with corporate valuations under heavy pressure. Indeed, Halliburton has agreed to pay a hefty premium of 41 per cent over Baker Hughes's stock price on the day before it made its first bid last Monday.

U.S. energy service companies have gone shopping in Canada before, and it's never been easy for them. FirstEnergy Capital Corp. analyst Kevin Lo points out that the companies they absorb often bleed customers and even staff, who leave to form their own outfits.

"But if valuations stay here, you have to think that guys are going to start kicking tires," he said.

The effects of skidding global oil markets have been cushioned in Canada somewhat by unusually small heavy oil discounts, the weakening loonie and active hedging. Still, the outlook for cash flow among Canadian energy service businesses is darker than it was earlier this year.

If the downturn lasts through this winter's drilling season, the energy service providers will be a whole lot more vulnerable.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:00pm EDT.

SymbolName% changeLast
AL-N
Air Lease Corp Cl A
+1.34%51.44
CFW-T
Calfrac Well Services Ltd
+0.51%3.96
HAL-N
Halliburton Company
+1.52%39.42
L-N
Loews Corp
+0.24%78.29
TCW-T
Trican Well
0%4.15

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