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GE Deal With Baker Hughes Creates $32 Billion Oil-Services Giant

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General Electric
  • GE Deal With Baker Hughes Creates $32 Billion Oil-Services Giant

General Electric Co. agreed to combine its oil and gas business with Baker Hughes Inc., creating an industry giant with a broader suite of offerings amid the ongoing slump in crude prices.

GE will own a 62.5 percent stake in the combined provider of oilfield services, which will be publicly traded and have $32 billion in sales, the companies said Monday in a statement. GE will contribute $7.4 billion to fund a special dividend of $17.50 a share to Baker Hughes stockholders.

“This transaction creates an industry leader, one that is ideally positioned to grow in any market,” GE Chief Executive Officer Jeffrey Immelt said in the statement. The “new Baker Hughes” will draw on the companies’ combined experience in manufacturing and service, while broadening the use of digital technology such as GE’s Predix operating system, according to the statement.

Oilfield contractors are increasingly forming partnerships to help cut costs and expand their offerings and distribution channels amid the downturn. The moves have come into favor as customers seek ways to improve efficiency and get greater value out of the services and gear needed to suck crude out of the ground.

The deal comes after GE held talks earlier this year about buying pieces of Baker Hughes set to be divested under a sale of the Houston-based company to Halliburton Co., a transaction that collapsed. By joining forces, Baker Hughes and GE are betting they can compete more effectively with the world’s top oilfield-services provider, Schlumberger Ltd., which recently bought equipment-maker Cameron International.

Shares Rise

GE rose less than 1 percent to $29.43 at 7:10 a.m. in New York before regular trading, while Baker Hughes was up 7.9 percent to $63.80. Through Oct. 28, GE had fallen 6.2 percent this year, compared with a 4 percent gain in the Standard & Poor’s 500 Index. Baker Hughes rose 28 percent over the same period.

The transaction is subject to approval by regulators and Baker Hughes shareholders, as well as other customary closing conditions.

Lorenzo Simonelli, CEO of GE Oil & Gas, will serve in the same role at the new company, while Immelt will be chairman and Baker Hughes CEO Martin Craighead will be vice chairman, according to the statement. The company will have dual headquarters in Houston and London.

The transaction, expected to close in the middle of next year, will add 4 cents a share to GE’s earnings in 2018 and 8 cents by 2020, GE said. The company anticipates “runrate synergies,” or savings through cost cuts, of $1.6 billion by 2020.

The companies plan to discuss the merger in an investor conference call at 8:30 a.m. New York time.

Oil Expansion

GE has expanded its oil and gas business in recent years through more than $10 billion in acquisitions, making it the company’s fourth-largest division. Yet, within the world of oilfield services and equipment manufacturing, Boston-based GE ranked 11th, according to April data from Spears & Associates.

Sales in GE’s oil and gas unit fell 25 percent in the third quarter, the biggest decline among the company’s industrial units. Immelt emphasized in a conference call this month that “we still think this is a core GE business.” Executives have said the company, which may add as much as $20 billion of new debt to support growth efforts, is open to deals and would like to be opportunistic during the oil market slump.

Baker Hughes terminated plans to be acquired by Halliburton earlier this year after failing to win antitrust approval from regulators.

Hardest Hit

The oil-services and equipment sectors have been among the hardest hit in the industry’s two-year downturn, contributing the largest chunk of the more than 350,000 jobs slashed globally.

At least 100 North American oilfield-service companies have gone bankrupt in 2015 and 2016 as energy prices slid, according to a tally by law firm Haynes & Boone. Exploration customers were forced to cut an unprecedented amount of spending over the past two years to cope with the oil industry’s worst financial crisis in a generation.

Centerview Partners and Morgan Stanley served as financial advisers to GE on the deal, while Shearman & Sterling provided legal advice. Goldman Sachs Group Inc. advised Baker Hughes on financial matters and Davis Polk was the company’s legal adviser.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

A Loud Blast Heard in Dhahran, Saudi Arabia’s Largest Crude Oil Production Site

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Loud Blast Heard in Dhahran, Saudi Arabia’s Largest Crude Oil Production Site

Two residents from the eastern city of Dhahran, Saudi Arabia, on Sunday said they heard a loud blast, but they are yet to know the cause, according to a Reuters report.

Saudi’s Eastern province is home to the kingdom’s largest crude oil production and export facilities of Saudi Aramco.

A blast in any of the facilities in that region could hurt global oil supplies and bolster oil prices above $70 per barrel in the first half of the year.

One of the residents said the explosion took place around 8:30 pm Saudi time while the other resident claimed the time was around 8:00 pm.

However, Saudi authorities are yet to confirm or respond to the story.

 

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Crude Oil

Brent Crude Oil Approaches $70 Per Barrel on Friday

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Crude oil

Nigerian Oil Approaches $70 Per Barrel Following OPEC+ Production Cuts Extension

Brent crude oil, against which Nigerian oil is priced, rose to $69 on Friday at 3:55 pm Nigerian time.

Oil price jumped after OPEC and allies, known as OPEC plus, agreed to role-over crude oil production cuts to further reduce global oil supplies and artificially sustain oil price in a move experts said could stoke inflationary pressure.

Brent crude oil rose from $63.86 per barrel on Wednesday to $69 per barrel on Friday as energy investors became more optimistic about the oil outlook.

While certain experts are worried that U.S crude oil production will eventually hurt OPEC strategy once the economy fully opens, few experts are saying production in the world’s largest economy won’t hit pre-pandemic highs.

According to Vicki Hollub, the CEO of Occidental, U.S oil production may not return to pre-pandemic levels given a shift in corporates’ value.

“I do believe that most companies have committed to value growth, rather than production growth,” she said during a CNBC Evolve conversation with Brian Sullivan. “And so I do believe that that’s going to be part of the reason that oil production in the United States does not get back to 13 million barrels a day.”

Hollub believes corporate organisations will focus on optimizing present operations and facilities, rather than seeking growth at all costs. She, however, noted that oil prices rebounded faster than expected, largely due to China, India and United States’ growing consumption.

The recovery looks more V-shaped than we had originally thought it would be,” she said. Occidental previous projection had oil production recovering to pre-pandemic levels by the middle of 2022. The CEO Now believes demand will return by the end of this year or the first few months of 2022.

I do believe we’re headed for a much healthier supply and demand environment” she said.

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Crude Oil

Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

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Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

Brent crude oil, against which Nigerian oil is priced, rose to $67.70 per barrel on Thursday following the decision of OPEC and allies, known as OPEC+, to extend production cuts.

OPEC and allies are presently debating whether to restore as much as 1.5 million barrels per day of crude oil in April, according to people with the knowledge of the meeting.

Experts have said OPEC+ continuous production cuts could increase global inflationary pressure with the rising price of could oil. However, Saudi Energy Minister Prince Abdulaziz bin Salman said “I don’t think it will overheat.”

Last year “we suffered alone, we as OPEC+” and now “it’s about being vigilant and being careful,” he said.

Saudi minister added that the additional 1 million barrel-a-day voluntary production cut the kingdom introduced in February was now open-ended. Meaning, OPEC+ will be withholding 7 million barrels a day or 7 percent of global demand from the market– even as fuel consumption recovers in many nations.

Experts have started predicting $75 a barrel by April.

“We expect oil prices to rise toward $70 to $75 a barrel during April,” said Ann-Louise Hittle, vice president of macro oils at consultant Wood Mackenzie Ltd. “The risk is these higher prices will dampen the tentative global recovery. But the Saudi energy minister is adamant OPEC+ must watch for concrete signs of a demand rise before he moves on production.”

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