GE, Baker Hughes cre­ate pow­er­ful new player in en­ergy sec­tor

Daily Local News (West Chester, PA) - - BUSINESS - By David Koenig AP Busi­ness Writer

DAL­LAS » Gen­eral Elec­tric is tak­ing ad­van­tage of a pro­longed en­ergy slump to be­come a big­ger player in the oil and gas drilling busi­ness, a bet that could pay off big when prices re­cover.

GE and Baker Hughes Inc. will com­bine their oil and gas op­er­a­tions, cre­at­ing a ma­jor player in the oil­field-ser­vices in­dus­try at a time when the en­ergy sec­tor is bogged down by weak and volatile com­mod­ity prices.

The new pub­licly traded com­pany will still be called Baker Hughes, but GE will own 62.5 per­cent of it.

On a call with in­vestors, GE CEO Jeff Im­melt said the deal was in­tended to cre­ate a more tech­ni­cally so­phis­ti­cated com­pany that can pro­vide the kinds of ad­vanced ser­vices that oil com­pa­nies will de­mand.

It will also be bet­ter able to weather the slump in oil prices, and “if pric­ing gets bet­ter, it al­lows us to ben­e­fit from that as well,” Im­melt told CNBC.

The ma­jor oil-ser­vice com­pa­nies — Baker Hughes, Sch­lum­berger Ltd. and Hal­libur­ton Co. — are among the first to feel the pinch of weak prices, as ma­jor oil com­pa­nies cut cap­i­tal spend-

ing and rene­go­ti­ate con­tracts with sup­pli­ers.

Af­ter se­vere de­clines in the price of oil and gas dur­ing the re­ces­sion, prices ap­peared to re­cover and sta­bi­lize as pro­duc­tion charged for­ward. But oil prices be­gan to slide again in mid2014,

cre­at­ing new head­winds and thou­sands of lay­offs at Baker Hughes and its ri­vals.

If Mon­day’s deal is com­pleted and fur­ther con­sol­i­dates the ser­vices busi­ness,

it could boost pric­ing power for all the ma­jor com­pa­nies. But there is no guar­an­tee that the trans­ac­tion will suc­ceed.

Hal­libur­ton at­tempted to buy Hous­ton-based Baker Hughes but aban­doned the $35 bil­lion bid this year af­ter U.S. an­titrust reg­u­la­tors op­posed it and sug­gested they would de­mand large di­vesti­tures.

Most an­a­lysts, how­ever,

say Baker Hughes and GE’s oil and gas op­er­a­tions have lit­tle over­lap­ping busi­ness, mak­ing big di­vesti­tures less likely.

With the com­bined com­pany, “you get tech­ni­cal oil and gas ex­per­tise from Baker and also that man­u­fac­tur­ing prow­ess from GE, which hope­fully get costs down quite a bit and of­fer some pretty good so­lu­tions” for oil com­pa­nies, Jonathan

Gar­rett, an en­ergy an­a­lyst with Wood Macken­zie, said in an interview.

Baker Hughes is the small­est of the three lead­ing in­ter­na­tional oil­field-ser­vices com­pa­nies, which help oil and gas com­pa­nies drill and keep wells run­ning.

Sch­lum­berger and Hal­libur­ton are likely to con­tinue dom­i­nat­ing for ba­sic ser­vices such as drilling and hy­draulic frac­tur­ing,

THE AS­SO­CI­ATED PRESS

In a deal an­nounced Mon­day, Gen­eral Elec­tric and Baker Hughes are com­bin­ing their oil and gas busi­nesses to cre­ate a pow­er­ful player in an en­ergy sec­tor buf­feted by years of weak prices.

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