Following a trend within the oil services industry to consolidate competing operations, Baker International Corp. said Thursday that it will combine its Houston-based Milchem drilling fluids subsidiary with Newpark Drilling Fluids, owned by New Orleans-based Newpark Resources Inc.
No money will change hands in the deal, according to officials for both firms, and the new company, dubbed "Milpark," will not assume either partner's long term debt except for $7.5 million of Newpark's bond obligations.
According to Ron Turner, Baker's vice president, Orange-based Baker will maintain a 64% majority interest in the new operation. The agreement gives Baker a non-binding option to purchase Newpark Resources' interest in the joint venture at the end of three years. Turner would not disclose how much Baker might pay for the other 36% of Milpark.
Drilling fluids are pumped into oil wells as they are being dug and prevent gushers by acting as liquid caps. In addition, they carry cuttings from the drill bits to the surface, where they are discarded.
Industry analysts say the prolonged slump suffered by the oil industry has forced many competing firms in the oil-service sector to combine their operations over the last three years. Since 1984 alone, about a dozen such mergers have taken place, according to Kevin Simpson, an analyst with Drexel Burnham Lambert Inc.
The Newpark-Milchem merger, Simpson said, "combines companies that have a high enough market share to create a sizable competitor in the market place."
Turner said the new venture will have combined 1985 revenues of about $225 million.
"What this all comes from is that the oil service industry is having a very tough time and practically everybody is trying to find ways and means to improve profits," said Herb Hart, an analyst with the San Francisco office of S.G. Warburg, Rowe & Pitman, Akroyd Inc. "I think you're going to see more of this sort of thing because of that tremendous pressure in the industry to improve profits."
Baker's Milchem subsidiary has been "marginally profitable," except during 1983, Turner said. However, Newpark's drilling fluids subsidiary lost money in 1984 and has posted losses during the first half of this year, according to Ron Hengen, a company spokesman.
During the whole of 1984, the Newpark subsidiary posted a net loss of $5.8 million on revenues of $103 million. For the first half of 1985, which ended June 30, the operation had a loss of $2.9 million on revenues of $50.6 million, he said.