While Halliburton is yet to publicly confirm it, overnight Baker Hughes revealed it was in preliminary discussions with Halliburton "regarding a potential business combination transaction".

"These discussions may or may not lead to any transaction," the company said.

"Baker Hughes does not intend to comment further on market speculation or disclose any developments unless and until it otherwise deems further disclosure is appropriate or required."

The news sent New York-listed Baker Hughes shares up 15% to a market value of more than $US25 billion ($A28.7 billion) while Halliburton shares rose 1% to lift its market value to roughly $46 billion.

Bloomberg reported a source said that Halliburton initiated the talks by contacting Baker-Hughes several weeks ago.

"By eliminating a competitor, Halliburton, already the world's second-biggest provider of oilfield services, would gain market clout that would help insulate it from a sustained market decline," the newswire reported.

"A combination of Halliburton with number-three Baker-Hughes would be a little more than half the size of larger rival Schlumberger Ltd."

Whether such a deal would be well received by US antitrust regulators is questionable.

"The two gorillas in the room are getting together," University of Houston energy economics lecturer Ed Hirs told the newswire. "Halliburton and Baker-Hughes would have been competing more strenuously to maintain market share in the downturn, but this will make that easier."

Reuters reported that a merger of the two would create a drilling, logistics and well services giant worth $67 billion and with 140,000 employees, however it would still be smaller than the $125 billion market capitalisation of rival Schlumberger.

"With Baker-Hughes, Halliburton fills a gap in its portfolio of oilfield services: technology to boost production in aging wells," Bloomberg reported.

"Halliburton also gets Baker-Hughes' prized oil tools business."