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2017-07-05 12:10:00

GE & BAKER HUGHES DEAL

GE & BAKER HUGHES DEAL

WSJ General Electric Co.  closed its deal to combine its long-suffering energy business with Baker Hughes Inc. on Monday, creating one of the largest companies in the oil-field services industry.

The new publicly traded company, which will retain the Baker Hughes name, will pursue further cost cuts as it awaits an elusive recovery in oil prices. Majority-owned by Boston-based GE, it will trade on the New York Stock Exchange under the symbol BHGE, with dual headquarters in Houston and London.

While oil services wasn't a core part of GE's industrials business, the new Baker Hughes could be better equipped to compete with industry leaders Halliburton Co.  and Schlumberger Ltd.  in providing equipment and services to major oil producers.

"We are really filling one of the gaps that GE oil and gas had with oil-field services," said Lorenzo Simonelli, who is CEO of the new company after having run GE's oil and gas operations. "It evens out the total exposure in the portfolio."

GE has been cutting costs for years but plans to trim another $1.2 billion from the combined company by 2020. It has declined to say how many employees could lose their jobs as a result of the merger.

The deal gives GE a larger footprint in an industry that has been decimated since 2014 as oil prices fell from over $100 a barrel to less than $30. The industry shed more than 160,000 jobs over the last three years and was forced to accept pricing cuts—sometimes more than 50%—from its customers. More than 200 oil-field-service companies went bankrupt.

The industry's outlook rebounded earlier this year as oil prices stabilized around $50 per barrel, but optimism has fizzled with another drop in prices in June. Barclays predicts the U.S. rig count, a widely used measure for drilling activity, to decline by the end of the year, after adding 270 rigs earlier this year.

Reduced drilling could make one of Baker Hughes's key businesses even more lucrative: artificial lift, a technology used to force oil out of older wells as they run dry. Baker Hughes owns about 18% of the global market for artificial lift, second only to Schlumberger, while GE controls about 11%, according to 2016 data from Spears & Associates.

GE's core business is making jet engines, turbines, MRI machines and other heavy-duty industrial equipment, and its oil and gas operations have long weighed on financial results. Baker Hughes is focused on oil-field services, helping producers drill and frack their wells. The deal will double GE's exposure to the exploration-and-production side of the industry.

Baker Hughes, formed in a 1987 merger of Baker International and Hughes Tool, dates back to Howard Hughes Sr.'s revolutionary drillbit invention in the early 20th century.

Halliburton attempted to buy the company in 2014 in a $28 billion deal that was ultimately scuttled in early 2016 amid regulatory objections. During those negotiations, the companies held talks with GE to sell off more than $7 billion in assets to help win federal approval.

Today, oil and gas extraction are increasingly technically sophisticated, and GE plans to make a push into sensors and data that can boost oil-field profitability. Some analysts believe the shifts in the industry have created openings for leaner, more efficient and digitally minded service providers to gain market share.

"We continue to view [the merger] as one of the most transformative deals to take place in the oil-service space in decades," Evercore ISI analyst James West wrote in a note to investors. "The new entity should be considered an industry powerhouse with a full cycle portfolio of products and services...and a leading position at the forefront of the digital revolution."

The new structure could also allow GE to exit the sector entirely, analysts have noted. When GE's new chief executive, John Flannery, takes the helm in August, he is expected to review the conglomerate's entire portfolio.

"It remains to be seen if oil and gas is a keeper," said Deane Dray, an analyst at RBC Capital Markets, adding, "If GE hadn't done this deal, they would be in a worse situation."

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Earlier: 

BAKER HUGHES NET LOSS $129 MLN 

BAKER HUGHES NET LOSS $2.7 BLN 

GE & BAKER HUGHES: $32 BLN 

HALLIBURTON VS U.S.: SENSELESSLY 

HALLIBURTON & BAKER HUGHES TERMINATION 

HALLIBURTON & BAKER HUGHES CONTEST 

HALLIBURTON & BAKER HUGHES PROBLEMS: $35 BLN

 

 

Tags: GENERAL, ELECTRIC, BAKER, HUGHES

Chronicle:

GE & BAKER HUGHES DEAL
November, 15, 15:25:00

OIL PRICE: ABOVE $61 AGAIN

REUTERS - Brent crude futures LCOc1 were down 72 cents at $61.49 per barrel at 1020 GMT, having fallen by 1.5 percent on Tuesday, its largest one-day drop in a month. U.S. West Texas Intermediate (WTI) crude CLc1 was at $55.12 per barrel, down 58 cents.

GE & BAKER HUGHES DEAL
November, 15, 15:20:00

IEA COOLS THE MARKET

BLOOMBERG - Prices dropped during the session as the International Energy Agency said the recent recovery in oil prices, coupled with milder-than-normal winter weather, is slowing demand growth. The worsening outlook for consumption dampened some of the enthusiasm that OPEC and its allies will extend supply curbs.

GE & BAKER HUGHES DEAL
November, 15, 15:15:00

IEA: GLOBAL ENERGY DEMAND UP BY 30%

Global energy needs rise more slowly than in the past but still expand by 30% between today and 2040. This is the equivalent of adding another China and India to today’s global demand.

GE & BAKER HUGHES DEAL
November, 15, 15:10:00

RUSSIA'S OIL EXPORTS UP

Product exports have grown significantly over the past several years and are expected to continue to grow as Russian refineries add capacity to produce more high-quality products.

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