Daily Local News (West Chester, PA)
GE, Baker Hughes create powerful new player in energy sector
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,