Two oil field service titans joined forces last week to create anew seismic oil and gas exploration business, a move that analystssay will reshape the seismic industry. Baker Hughes andSchlumberger have signed a memorandum of understanding under whichSchlumberger’s surface seismic business Geco-Prakla and BakerHughes’ seismic unit Western Geophysical would become Western GECO.

Company officials cited cost savings as a key factor in theirdecision 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, willpay Houston’s Baker Hughes $500 million in cash, and Western GECOwill be 70% owned by Schlumberger. Western GECO will own theseismic acquisition assets, data processing assets, seismiclibraries and other assets of the two businesses, the companiessaid in a statement. Gary Jones, president of Baker Hughes’ WesternGeophysical, will become president of Western GECO.

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

Wicklund said that the announcement “reshapes the seismicindustry in a very big way.” He said that analysts had predicted ajoint venture between the two companies, but this announcement “isfarther reaching than we had expected.”

First Union analyst Yves Siegel said that the partnership”creates the world’s largest, and in our opinion, the technologicalleader in the seismic industry.” He said the move will save both ofthe companies money, and “put both companies’ businesses solidly inthe black.”

Joe B. Foster, Baker Hughes chairman, president and CEO, said ina statement that the venture assures his company will have “fairand equal access to seismic technology for use in all our oilfieldbusinesses while simultaneously improving Baker Hughes’ overallperformance.” He said the move also will allow Baker Hughes tofocus on its “traditionally strong service” and itsproduct-oriented businesses.

Schlumberger oilfield services Vice President Andrew Gould saidthat the “cost savings would support the development and innovationnecessary to help seismic maintain its role as a key contributor tothe oil industry’s process of lowering the cost of finding andproducing oil and gas.”

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

Carolyn Davis, Houston

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