General Electric (GE) on Monday said it would pay $3.3 billion to buy Lufkin Industries Inc., a leading provider of artificial lift technologies for the oil and gas industry.
Lufkin shareholders would receive $88.50/share in the purchase. The stock closed on Friday trading at $63.93/share. The Lufkin, TX-based company sells and services oilfield pumping units, well automation systems, natural gas lift and plunger lift systems, progressing cavity pumps, well completion products, foundry castings and power transmission products throughout the world. It also has technologies required to design, manufacture and market its products.
It’s biggest draw is its advanced artificial lift technology, which is used in nearly all — 94% — of the one million producing wells in the world. Artificial lift helps draw hydrocarbons to the surface in reservoirs with low pressure, and it improves the efficiency of naturally flowing wells.
“Advanced technologies, combined with new drilling practices, are revolutionizing the oil and gas industry,” said GE Oil & Gas CEO Daniel C. Heintzelman. “The artificial lift segment is at the heart of critical changes that are helping producers maximize well potential, which translates into increased output at lower operational cost.”
With the purchase, Lufkin would broaden GE Oil & Gas capabilities beyond electric submersible pumps (ESPs) to include rod lift, gas lift, plunger lift, hydraulic lift, progressive cavity pumps, and an array of well automation and production optimization controls and software. The ESP category of artificial lift is the only lift segment in which Lufkin currently does not compete.
“Lufkin’s world-class people, equipment and services fit perfectly in our portfolio and will enable us to offer a wide range of artificial lift solutions to our customers in this fast-growing artificial lift sector,” said Heintzelman. “In turbomachinery, Lufkin is already one of our suppliers for turbo gearing and specialty bearings products, and this acquisition allows us to further utilize their technologies and expertise for our customers.”
Last year Lufkin posted record revenues of $1.3 billion, which reflected growth of 37%. New business bookings in 2012 grew 38% companywide to $1.3 billion year/year, driven by a 47% increase in its artificial lift business. The GE Oil & Gas division has close to 37,000 employees in more than 100 countries supporting customers across the industry from extraction to transportation to end use.
GE’s global scale will “create new opportunities for our customers and employees around the world,” said Lufkin CEO Jay Glick. “This transaction allows us to realize our strategic objectives for expanding both our portfolio and our global platform and will allow us to reach global customers much faster and more effectively than we could have done as a standalone company.”
Lufkin has about 4,500 employees in more than 40 countries. It manufactures and services a portfolio of artificial lift equipment through a global network of more than 110 service centers and nine manufacturing facilities. In addition, its three turbomachinery production facilities and seven service centers manufacture industrial gears and engineered bearings that are designed to produce higher power levels and speeds and better efficiencies in turbine applications, predominately for energy-related industrial applications.
The transaction, which is unanimously recommended by Lufkin’s board of directors, is expected to close in the second half of 2013, subject to shareholder and regulatory approvals.
The oil and gas subsidiary is GE’s fastest growing business. Last week GE announced that it would build a $110 million Global Research Center in Oklahoma dedicated to driving innovation and technological advancements in the oil and gas sector (see Daily GPI, April 4). CEO Jeff Immelt said at the time that GE sees “tremendous opportunity in the oil and gas space.”
GE’s portfolio of turbomachinery equipment is used in mechanical-drive, compression and power-generation applications such as liquefying natural gas, moving hydrocarbons through pipelines or generating power via gas turbines at a production or industrial site. Lufkin’s suite of gears and bearings, which would complement the existing product line, are now used on GE compressor and gas turbines. Lufkin would continue to sell these to the open market as it does today.
Citing research by Spears & Associates, GE noted that the global artificial lift sector is expected to approach $13 billion this year.
“Growth is being fueled by the development of unconventional shale plays and liquids-rich resource plays. For example, in North America, an increased pursuit of oil has driven demand for the rod lift systems manufactured by Lufkin,” GE noted. “In 2010, rod lift systems represented about 19% of the artificial lift sector (as measured by dollars of equipment sold per year). By 2012, rod lift had grown to 31% percent of the sector, according to Spears.”
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