The GE–Baker Hughes deal
On October 31, 2016, Baker Hughes (BHI) disclosed that it will combine with GE’s (GE) Oil and Gas business to form a new partnership—Baker Hughes, a GE Company. In an investor meeting held on December 8, BHI updated investors on the deal. You can read more about this deal in Market Realist’s GE to Partner with BHI? The Changing Oilfield Services Landscape.
General Electric and Baker Hughes offer complementary products and services in the offshore and onshore completion and production service business, as well as the evaluation and drilling business. GE also has exposure to the midstream and downstream energy services and equipment businesses.
Combining GE’s oil and gas assets with BHI is expected to create a complementary technology platform, wider product offering, and cost optimization benefits. BHI’s core business can benefit from GE’s advanced technology and a wide customer base.
What are global opportunities for the proposed new BHI?
The combined GE–BHI entity is expected to see opportunities in the less-developed, but adequately resourced, regions such as the African subcontinent—particularly West Africa. In West Africa, upstream operators can benefit from developing stranded natural gas and monetizing it during field development. This region also has ultra-deepwater wells.
BHI can also find business opportunities in offshore projects in Brazil. In Brazil, energy production involves complex, multi-prospect discovery, including reservoir evaluation opportunities. Production depends on setting up an FPSO (floating production, storage, and offloading) floating unit. Both Baker Hughes and GE have broad portfolios of subsea products and services required to facilitate offshore drilling activity.
Baker Hughes’s project awards
In 2016, Baker Hughes (BHI) won contracts for upstream and downstream chemical projects in North America, Europe, Africa, the Middle East, and Southeast Asia. Halliburton (HAL) and Schlumberger (SLB) also have a strong presence in these regions. BHI comprises 0.10% of the SPDR S&P 1500 Value Tilt ETF (VLU). The energy sector makes up 11.5% of VLU.
The combined entity could also benefit from North American shale plays. We’ll discuss these opportunities in the next part.