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Schlumberger, Baker Hughes Shake Up Seismics

Schlumberger, Baker Hughes Shake Up Seismics

Two oil field service titans joined forces last week to create a new seismic oil and gas exploration business, a move that analysts say will reshape the seismic industry. Baker Hughes and Schlumberger have signed a memorandum of understanding under which Schlumberger's surface seismic business Geco-Prakla and Baker Hughes' seismic unit Western Geophysical would become Western GECO.

Company officials cited cost savings as a key factor in their decision to work together, while analysts praised the partnership, calling it a positive for both companies. Under the agreement, Schlumberger, with headquarters in both Paris and New York, will pay Houston's Baker Hughes $500 million in cash, and Western GECO will be 70% owned by Schlumberger. Western GECO will own the seismic acquisition assets, data processing assets, seismic libraries and other assets of the two businesses, the companies said in a statement. Gary Jones, president of Baker Hughes' Western Geophysical, will become president of Western GECO.

Dain Rauscher Wessels analyst Jim Wicklund said the agreement will give Baker Hughes $500 million to pay down debt, allow it to reduce its working capital by $100 million, and retain a 30% interest in Western GECO. The two seismic units had combined revenue of nearly $1.5 billion last year.

Wicklund said that the announcement "reshapes the seismic industry in a very big way." He said that analysts had predicted a joint venture between the two companies, but this announcement "is farther reaching than we had expected."

First Union analyst Yves Siegel said that the partnership "creates the world's largest, and in our opinion, the technological leader in the seismic industry." He said the move will save both of the companies money, and "put both companies' businesses solidly in the black."

Joe B. Foster, Baker Hughes chairman, president and CEO, said in a statement that the venture assures his company will have "fair and equal access to seismic technology for use in all our oilfield businesses while simultaneously improving Baker Hughes' overall performance." He said the move also will allow Baker Hughes to focus on its "traditionally strong service" and its product-oriented businesses.

Schlumberger oilfield services Vice President Andrew Gould said that the "cost savings would support the development and innovation necessary to help seismic maintain its role as a key contributor to the oil industry's process of lowering the cost of finding and producing oil and gas."

Within two years, analyst Wicklund predicted the new Western GECO could become an independent public company. If that happens, he said that it would give Baker Hughes and Schlumberger the opportunity to cash-out. The agreement is expected to close before year-end.

Carolyn Davis, Houston

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