Baker Hughes Inc., still smarting after its mega-merger with Halliburton Co. was scuttled earlier this year, is in talks with General Electric (GE) regarding joint ventures, officials confirmed Friday.
"We are in discussion with Baker Hughes on potential partnerships," GE spokeswoman Deirdre Latour said. "While nothing is concluded, none of these options include an outright purchase."
Baker is the No. 3 oilfield services (OFS) operator in the world, while GE Oil & Gas has become a leading provider of onshore and offshore equipment and technology (see Daily GPI, Oct. 25a). GE's energy business has core themes: standardize technology, offer digital solutions and collaboration (see Shale Daily, Aug. 24). Its oilfield expertise extends across some of the same footprint as Baker, with segments for wireline technology, drilling measurement, production, natural gas processing/compression, power generation, surface flow/well control, logging services and artificial lift.
As to what GE might be discussing with Baker, no details were offered. CEO Martin Craighead hinted during a third quarter conference call a few days ago that "someone" could take over the pressure pumping business (see Shale Daily, Oct. 25b). The capital intensity required to keep pressure pumping a priority was not an advantage, he said.
However, it may have more to do with some other piece of Baker's onshore/offshore technology expertise, according to Evercore ISI's James West.
From an "industrial standpoint," purchasing an OFS operator "at the bottom of the downturn could reap many rewards for GE," but "forming partnerships with a leading technology provider may be the more prudent step," West said. "Could this be the prelude to a larger transaction or a way for GE to take a look under the hood of a strong OFS innovator?
“We find the timing of these discussions interesting, especially in light of GE's interest during the Halliburton/Baker merger procedurals, when GE was viewed as the likely bidder for any divestitures."
GE's preference for a partnership instead of takeover could speak to its preference to migrate toward a more asset-light model within the OFS spectrum, West said.
"Furthermore, we suspect this is likely an avenue for GE to promote the widespread adoption of its industrial internet platform Predix, a focal point of the company's long-term strategy...As perceived value within the oil patch shifts from hard assets to the cloud, these type of alliances will likely become increasingly differentiating factors (if not necessary) to compete at the upper echelon of the next upcycle."
Last year GE Oil & Gas launched a partnership with Houston-based McDermott International Inc. to offer front-end offshore field services, ranging from portfolio evaluation to final investment decisions (see Daily GPI, Jan. 15, 2015). The GE unit also is collaborating with National Oilwell Varco Inc. to optimize deepwater production (see Daily GPI, July 8). Baker has a similar alliance with Norway's Aker Solutions ASA, as does Schlumberger Ltd. and Cameron International Corp. through OneSubSea (see Daily GPI, Aug. 27, 2015; Nov. 16, 2012).
"Details are light, but our initial reaction tells us that any partnerships would likely preclude pressure pumping," West said. "Artificial lift partnerships could bring regulatory scrutiny," as Baker commands 16% of the market and GE holds 14%, according to Spears and Associates.