OREANDA-NEWS. Fitch Ratings has affirmed Halliburton Company's (Halliburton; NYSE: HAL) Long-term Issuer Default Rating (IDR) at 'A-'. The Rating Outlook is Stable.

Approximately \\$7.8 billion of debt is affected by today's rating action. A full list of rating actions follows at the end of this press release.

KEY RATING DRIVERS
Halliburton's ratings consider its operational and financial flexibility, leading position in the oil & gas services sector with strong asset quality and a global footprint, strengthening international operations, and manageable through-the-cycle pro forma leverage profile. An additional consideration is the added scale and, in some cases, technological improvements the pending Baker Hughes Incorporated (Baker Hughes; NYSE: BHI) transaction will provide. These strengths are offset by the possibility of a prolonged oilfield services recovery, particularly in the U.S. (50%-55% of historical revenues), due to the weak oil & gas pricing environment, acquisition integration risk, and management's willingness to balance shareholder activity consistent with its current 'A' category rating.

PENDING BAKER HUGHES ACQUISITION IMPROVES SCALE, ASSET QUALITY; HEIGHTENS EXECUTION RISK
The pending Baker Hughes acquisition is expected to improve on Halliburton's leading position in the fragmented North American (N.A.) oilfield services market by increasing its scale and, in some cases, enhancing its technology and offerings. This should help moderate margin pressure in the current weak oil & gas pricing environment and enhance the combined company's operating and financial profiles over the medium term, as well as improve its competitiveness internationally. Fitch understands, however, that geographic diversification will remain substantially unchanged post-close. Additionally, Fitch believes that the consolidation of the 'Big Three' into the 'Bigger Two' may trigger some customer attrition as international and national oil companies could look to maintain diversity among their service providers.

Management's intention is to fund the Baker Hughes transaction with cash (\\$8.3 billion) and stock. Fitch calculates, assuming 100% of the cash portion is debt-funded, pro forma latest 12 months (LTM) debt/EBITDA, as of March 31, 2015, to be 1.6x with and 1.9x without the nearly \\$2 billion in identified cost synergies. Fitch believes that the proposed funding mix will retain the company's manageable leverage profile. However, we recognize that there is considerable execution risk, though it has been somewhat mitigated by the establishment of a Halliburton integration team that, in conjunction with Baker Hughes, is developing a post-close plan to efficiently integrate both companies.

U.S. ACTIVITY MAY BE STABILIZING; INTERNATIONAL SHOWING POCKETS OF STRENGTH
Total U.S. rig counts have experienced price-induced declines of over 55% since the September 2014 peak with reductions oil-weighted (oil down about 60% vs. roughly 35% for gas). The current rig count stands at 863 (75% oil; 25% gas) with decline rates illustrating some signs of stabilization given the uptick in rig count the past couple of weeks (up four rigs total) and slowdown in average weekly declines to 1% over the previous seven weeks vs. 4% in January-early May. Fitch expects N.A. to continue to exhibit activity and pricing headwinds near-term, but sees activity beginning to stabilize in the second half of 2015. The company's asset quality and 'partnership' focus (e.g. improve E&P returns throughout the life of a well) should help moderate declines and accelerate improvements.

The international market has generally exhibited more resilience - rig count down 16% from 2014 peak levels - with the Middle East (8% reduction in rig count) experiencing the least downward pressure. Fitch expects Halliburton's international markets, as a whole, to exhibit relatively better results than N.A. Europe/Africa/CIS and Latin America are anticipated to be challenged, but the less price sensitive Middle East should remain solid supported by recent contract wins in Saudi Arabia, Iraq, UAE, and Kuwait.

DOWNCYCLE & ACQUISITION WIDEN LEVERAGE METRICS; MANAGEABLE PROFILE EXPECTED OVER MEDIUM TERM
Fitch's base case projects that Halliburton will be modestly free cash flow (FCF) negative, including dividends and a Macondo settlement payment, in 2015. The Fitch base case results in debt/EBITDA of about 4.1x in 2015, which assumes a late 2015 Baker Hughes acquisition (approximately 3.0x on a full-year, pro forma basis). The leverage profile is projected to steadily improve thereafter, given Fitch's supportive hydrocarbon price forecast assumptions, reaching roughly 2.0x by 2017. Fitch also views the company's ability to manage its FCF profile, consistent with previous downcycles, to maintain adequate liquidity and limit the need for debt funding as credit supportive.

ADEQUATE LIQUIDITY POSITION
Halliburton had cash and equivalents of \\$2.3 billion, as of March 31, 2015, with \\$808 million held by foreign subsidiaries, of which \\$313 million would be subject to U.S. tax if repatriated. The company intends to reinvest these funds internationally. In addition, the company had \\$105 million in fixed income investments consisting of corporate bonds and other Level 2 debt instruments.

Supplemental liquidity is provided by the company's \\$3 billion senior unsecured credit facility due April 2018. No revolver balances were outstanding as of March 31, 2015. Further, the company maintains a commercial paper program consistent with the size of the credit facility that has not been materially used historically and does not currently have an outstanding balance.

MANAGEABLE MATURITIES PROFILE AND OTHER LIABILITIES
Over the next five years, Halliburton has \\$600 million, \\$45 million, \\$800 million, and \\$1 billion of senior unsecured notes maturing in 2016, 2017, 2018, and 2019, respectively. These represent the company's 1.0% senior notes due August 2016; 7.53% senior notes due May 2017; 2.0% senior notes due August 2018; 5.9% senior noted due September 2018; and 6.15% senior notes due September 2019. The company is not subject to material financial covenants. Other covenants consist of lien limitations and transaction restrictions.

The company had over \\$3.1 billion in other contingent obligations on a multi-year, undiscounted basis as of Dec. 31, 2014. These obligations consist of purchase commitments (\\$2 billion), non-cancellable operating lease payments (\\$969 million), and other, primarily pension-related, obligations (\\$54 million).

Macondo litigation and payment risk has been substantially mitigated by the \\$1.1 billion settlement of punitive claims and the U.S. district court's finding of Halliburton not being grossly negligent for the spill, as well as the validity and enforceability of its indemnity and release clauses within the BP plc contract. The settlement payment will be paid into a trust in three installments over the next two years until all appeals are resolved. The first settlement payment has already been made with two payments of approximately \\$367 million each remaining. Fitch believes that the combination of the company's \\$2.3 billion of cash on hand as of March 31, 2015, and our base case operating cash flow profile provide ample liquidity and mitigate the need for any Macondo-related debt.

KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for Halliburton include:

--WTI oil price that trends up from \\$50/barrel in 2015 to \\$60/barrel in 2016 and a longer-term price of \\$70/barrel;
--Henry Hub gas price that trends up from \\$3/mcf in 2015 to \\$3.25/mcf in 2016, \\$3.50/mcf in 2017, and a longer-term price of \\$3.75/mcf;
--A stabilization in N.A. rig counts during 2H15 followed by an uptick in market demand for oilfield services;
--Mixed international results with the Middle East exhibiting pockets of strength and other regions generally challenged near-term;
--Capital expenditures are forecast to be \\$2.8 billion in 2015 followed by spending consistent with historical levels;
--Baker Hughes transaction, generally consistent with management expectations, is forecast to close in late 2015 with the cash portion fully debt-funded and the estimated \\$2 billion in synergies progressively realized over the next few years;
--The remaining two Macondo settlement payments are assumed to be paid in 2015 and 2016;
--Dividends are projected to remain flat near-term followed by increases consistent with management's 15%-20% payout target;
--Share repurchases are assumed to remain balanced with cash flows, divestiture proceeds, and other non-debt sources of cash.

RATING SENSITIVITIES
Positive: Future developments that may, individually or collectively, lead to a positive rating action include:

--Further improvement in N.A. results, on an activity and pricing basis, suggesting strengthening market conditions;
--Progress in achieving greater geographical diversification that reverses N.A.'s increasing proportional share of consolidated revenues/margins;
--Successful integration of Baker Hughes and realization of estimated acquisition synergies;
--Mid-cycle debt/EBITDA of 1.25x-1.5x on a sustained basis.

Fitch does not anticipate a positive rating action over the medium term given the execution risk associated with the pending Baker Hughes acquisition and current weak, oil & gas price-induced oilfield services environment.

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--Prolonged period of depressed market pricing and/or activity levels that leads to a weak oil & gas services outlook;
--Inability to efficiently integrate Baker Hughes leading to lower than expected operational and financial synergies;
--Acquisitions and/or shareholder-friendly actions that are inconsistent with the capital structure and expected cash flow profile;
--Mid-cycle debt/EBITDA over 2.0x on a sustained basis.

Halliburton's mid-cycle pro forma leverage profile is consistent with the current 'A-' rating. Fitch does not anticipate a negative rating action over the near term.

Fitch affirms the following ratings:

Halliburton Company
--Long-term IDR at 'A-';
--Senior unsecured notes/debentures at 'A-';
--Senior unsecured bank facility at 'A-';
--Short-term IDR at 'F2';
--Commercial paper program at 'F2'.

The Rating Outlook is Stable.