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Legal Drama Has Oil Services ETFs in Focus


Oil services ETFs such as the Market Vectors Oil Services ETF (OIH) and the iShares U.S. Oil Equipment & Services ETF (IEZ) have enjoyed some good times this year. Those funds are up an average of 18.5% year-to-date, but legal wranglings could weigh on the two ETFs in the near-term.

Thursday after the close of U.S. markets, Halliburton (HAL), the world’s second-largest oilfield services company, plead guilty to destroying evidence related to the 2010 Gulf of Mexico oil spill. That was the largest oil spill in U.S history and lead to breathtaking declines in shares of companies associated with the spill, namely BP (BP). [BP Trial Puts Energy ETF in Play]

“Halliburton has signed a cooperation and guilty plea agreement with the government in which Halliburton has agreed to plead guilty and admit its criminal conduct,” according to a statement released by the Justice Department.

As part of the plea agreement, Halliburton has further agreed, subject to the court’s approval, to pay the maximum-available statutory fine, to be subject to three years of probation and to continue its cooperation in the government’s ongoing criminal investigation. Separately, Halliburton made a voluntary contribution of $55 million to the National Fish and Wildlife Foundation that was not conditioned on the court’s acceptance of its plea agreement.”

That is not the only bad news for Halliburton and oil services ETFs. The company along with rival Baker Hughes (BHI) are being investigated by the Justice Department on the possibility that the companies engaged in anti-competitive fracking practices. The Justice Department did not identify the companies that are part of the investigation, but Baker Hughes and Halliburton confirmed they are part of the probe.

Halliburton and Baker Hughes combine for over 13% of OIH’s weight and 15.6% of IEZ’s weight. The glum headlines come as the sector is in the middle of a spate of earnings reports that OIH and IEZ have not reacted well to. Since Schlumberger reported its second-quarter results last Friday, IEZ is down 1.2% while OIH is lower by 1.4%. [A Pre-Earnings Look at the Oil Services ETF]

Market Vectors Oil Services ETF


ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.