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GE oil business to merge with Baker Hughes

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General Electric Co. (GE) announced early this week that it would merge its oil and gas business with Baker Hughes, creating the world’s second largest oilfield services provider.

The merger comes as the oil industry as a whole struggles to navigate the worst slump in decades driven by historically low oil prices.  GE officials said in seeking to create a new oilfield services giant, the combined company would be better positioned to withstand the shock of low oil prices and ride any recovery.

“We can weather the cycle in the short term and we will be very well positioned to lead the industry going forward”, said Jeffrey R. Immelt, GE’s chief executive, to analysts when announcing the deal.

“This transaction creates an industry leader, one that is ideally positioned to grow in any market. Oil and gas customers demand more productive solutions. This can only be achieved through technical innovation and service execution, the hallmarks of GE and Baker Hughes,” he said.

The transaction comes just a few months after Baker Hughes was nearly bought by rival Halliburton Co. in a proposed $28 billion deal which collapsed last May.  According to Bloomberg, the day the deal with Halliburton collapsed, GE Oil and Gas head Lorenzo Simonelli emailed Baker Hughes chief executive Martin Craighead in order to begin talks of forming a new oilfield services giant.

The combined company will act as a competitor for traditional equipment like drill bits and pumps to rival Schlumberger.  Combined, the new company would have had revenue of $32 billion last year, compared with $35.5 billion for Schlumberger.

The deal takes place as the oil industry continues to struggle.  The decline in oil prices, which have collapsed over 50 percent since the the summer of 2014, has forced exploration companies to decommission two-thirds of their drilling rigs, according to the New York Times.  As a result, business for oilfield services providers has been hit hard. Schlumberger and Halliburton together have laid off 85,000 employees since late 2014.

GE says it will own 62.5 percent of the new company.  The deal is expected to close in mid-2017.

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