After nine months of negotiation, the Baker Hughes-GE merger was finally completed on July 3
Baker Hughes is now officially a General Electric (GE) company. US-based GE’s London-based GE Oil & Gas subsidiary officially merged with oilfield services giant Baker Hughes on July 03. The resulting provider of oil and gas services and equipment is the second largest in size in oilfield services after Schlumberger.
The new firm’s stock began trading on July 05. Baker Hughes had already ceased trading. The merger follows Halliburton’s unsuccessful attempt to purchase Baker Hughes in 2016, which failed because of anti-trust issues. GE owns 62.5% of the new company, officially named Baker Hughes, a GE company (BHGE). The merged entity is also now describing itself as “the world’s first and only fullstream oil and gas company”. It is expected to tap into two of GE’s strengths – digital technology and “big data” – for the upstream, midstream and downstream sectors. That is, it will provide a broad range of equipment and services ranging from offerings for exploration and production to the refining and petrochemicals businesses.
BHGE has headquarters in both Houston and London. GE Oil & Gas’ CEO, Lorenzo Simonelli, has moved on to become the new BHGE CEO, while the former Baker Hughes CEO, Martin Craighead, has become BHGE’s vice chairman.
The tie-up was agreed in October 2016 and approved by the US Department of Justice (DoJ) in June. European Union regulators approved the merger in May. And 99% of shareholders of both companies voted in favour of the deal on June 30.
In a press release, Simonelli said: “Disruptive change is the oil and gas industry’s new normal. We created BHGE because oil and gas customers need to withstand volatility, work smarter and bring energy to more people. Our offering is further differentiated from any other in the industry across the value stream and enables and assists our customers in driving productivity, while minimising costs and risks.”
BHGE is expected to benefit from the longer-term rebound in oil and gas prices after the cratering of the market over the past few years, and the recent modest recovery. However, oil prices have started to wobble again, surprising the market forecasters and the US rig count is dropping, prompting concerns that tight oil production could start sliding once more.
According to the Financial Times, BHGE expects to achieve US$1.2 billion per year in cost savings by 2020 and to have “revenue synergies” of US$400 million per year by then. BHGE will have combined revenue of approximately US$23 billion, reported the newspaper.
Asked about oil producers’ apparent slow-down in the US market, Simonelli told Bloomberg in an interview on the eve of the finalised merger: “I think they need a little more time over the course of this year to make those decisions.” He was queried about the new company’s profits for 2018, given recent market uncertainty. “It’s a little early to say,” Simonelli responded.
BHGE has said that it will combine the physical and digital to increase reliability and uptime. “Applying digital and advanced technologies to oil and gas could bring approximately 5% productivity improvements across the entire industry,” the company said in a statement. “BHGE will use cloud-based software, advanced manufacturing and brilliant factory solutions to help its customers capture some of this opportunity – reducing risk and improving productivity in their operations as well as its own.”
Simonelli told Bloomberg that his priority was to reap synergies but retain the two companies’ market share. He can succeed, he said, because BHGE has the skills to out-manoeuvre its rivals.
“I think we’re number one,” said Simonelli. “When you look at the people we play against – a Schlumberger, a Halliburton, a Weatherford – they don’t have the same portfolio that we do.” However, like other oilfield services providers, BHGE will need to weather the storm of uncertain crude prices and a risk of declining oilfield service revenues.