Baker Hughes Inc. said Monday that it is working to emerge from its failed merger with Halliburton Co. as a leaner, more focused oil-field services company, outlining plans to cut $500 million in costs while buying back $1.5 billion of shares and $1 billion of debt.

A day after announcing that its merger with Halliburton, once valued at nearly $35 billion, was being called off after regulators claimed it would hurt competition, Baker Hughes said it would use a $3.5 billion breakup fee it got from Halliburton to repair its balance sheet and restructure its business.

Baker Hughes has been tethered to Halliburton since the deal to combine the second- and third-largest oil-field services businesses after Schlumberger Ltd. was announced in November of 2014. That has kept it from cutting costs and making other changes in response to an oil price rout that reduced demand for work drilling wells and pumping oil and natural gas.

Now that it is on its own, Baker Hughes says it will focus on its strengths and simplify its business.

"Innovation is what we do best and what our customers need the most. It is an enviable capability that is part of our culture and continues to differentiate us in the market," Chief Executive Martin Craighead said in a statement.

The companies had been working for roughly a year and a half to get the complex deal completed, and had been planning potentially to sell billions in assets to appease regulators.

But the Justice Department sued to block the merger last month, arguing that the deal would eliminate head-to-head competition in markets for nearly two dozen products and services used for U.S. oil exploration and production.

"We heard extreme statements of concern from dozens of companies and over 100 individuals," said David Gelfand, deputy assistant attorney general, during a conference call with reporters Monday following the collapse of the merger.

"I think it was not fixable at all," he added. "We gave them every opportunity to come in and convince us we were wrong about that, but that's where we ended up at the end of the day."

European Union antitrust authorities, which had opened a full investigation into the proposed merger in January, also said Monday that the deal had raised competition concerns in "a very large number of markets related to oil-field services," and said that several customers had raised issues with the merger.

Halliburton Chief Executive David Lesar said on Sunday that the company still believed the merger would have benefited customers and shareholders of both companies. But in the face of regulatory challenges and "general industry conditions that severely damaged deal economics," calling it off was the best course.

Shares of Baker Hughes fell 3.8% Monday in New York trading to $46.52. Halliburton shares rose 2.4% to $42.31.

Citing its cash war chest, many oil-field services experts have suggested that Baker Hughes will be in a strong position to take advantage of crude oil prices that have started to tick back up toward $50 a barrel. But the company also is grappling with a depleted workforce and it could take time for it to find footing.

Baker Hughes had struggled in some areas even before oil prices plunged, and is now re-entering the market at an even more difficult moment, with too many players and not enough work to go around, said Bill Herbert, an analyst with Piper Jaffray Cos.

"This is a much tougher market," he said. "We've got too much of everything."

On Monday, Baker Hughes said it was "taking immediate steps" to remove costs it couldn't previously eliminate due to merger, and was also "evaluating broader structural changes" to further reduce expenses and improve efficiency.

The company said it was assessing where it will provide its current full-service model and intends to provide tailored services to select countries as a way of bringing products to market with lower investment and fewer risks.

One business where Baker Hughes has struggled is fracking, which involves injecting water and other materials into a well to break apart rock formations to release oil and gas. Analysts have said the company stumbled as it tried to integrate BJ Services, a fracking firm it acquired in 2010, and has struggled to master the logistics of delivering massive quantities of sand, water, and manpower to well sites around the country.

Baker Hughes said Monday that it would "retain a selective footprint" in the U.S. onshore pressure pumping business as it cited overcapacity, commoditized pricing and low barriers to entry. Both Halliburton and Baker Hughes have significant market share in the business. Baker Hughes also said it intends to refinance its $2.5 billion credit facility, which expires in September.

Analysts said the collapse of the merger could spark a new round of deal making and reshuffling among oil-field services companies, which are grappling with the deep cuts being made by exploration and production companies.

"There's clearly an appetite for acquisitions right now," said Richard Spears, vice president of the oil field consulting firm Spears & Associates.

Write to Alison Sider at alison.sider@wsj.com and Austen Hufford at austen.hufford@wsj.com

 

(END) Dow Jones Newswires

May 02, 2016 14:15 ET (18:15 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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