The head of General Electric’s (GE) energy business unit touted natural gas during a GE-sponsored business strategy review last Tuesday, following an announcement that GE has signed $3 billion worth of new energy agreements with customers.

GE Energy CEO John Krenicki left no doubt that the company sees much upside to the natural gas boom in North America.

“In an environment where public policy is paralyzed [regarding alternative energy sources], all roads lead to natural gas,” said Krenicki. In the past decade, he said GE has greatly broadened its energy plays, globalizing its gas turbine business, moving heavily into wind turbines, gas reciprocating engines and eventually the oil and gas services business and others.

In the past 12 months the company has expanded its gas engines business in natural gas compression, Krenicki said in introducing a three-hour web-based review for financial analysts.

At the GE meeting growth was a driving part of the conglomerate’s message, underscoring that two-thirds of GE Energy’s business is outside the United States. Krenicki said a growing sector is GE’s development of large-scale manufacturing and energy services facilities throughout the world’s developing and emerging economies. “We’re an emerging markets company,” he said.

He said GE’s gas turbine sales last year (114) were roughly the same as 1995, so in assessing the company one has to look far beyond turbines to all of the other businesses — many gas-related — that GE has added.

“We have invested heavily in the M&A [mergers and acquisitions] sector to build out our gas franchises in the broadest sense,” said Krenicki. “We haven’t batted a thousand on acquisitions, but I think we have batted 0.700,” he said, citing last year’s $3 billion purchase of gas services giant Dresser Inc.

“We have done more than 90 deals since 2001 — not all of them were right — but the ones we didn’t get right we haven’t let go of, we’re still trying to work those into a better state.” He stressed that acquisitions like Dresser have built up GE’s burgeoning gas franchise.

Other speakers, including Dan Heintzelman, the head of GE’s oil and gas business operations, touted the oil and gas services industry as a high-growth potential business, with shale gas estimated to have annual growth potential in the 15-20% range. GE has doubled its oil and gas service business during the past four years, and its current estimates call for doubling it again in a little more than three years.

GE estimates that capital expenditures in the global oil and gas industry from this year through 2014 will approach $400 billion.

At a separate conference, senior energy utility executives said they were leery of Wall Street’s ready appetite for mergers and acquisitions (M&A). A panel examining growth in rate bases at the Bank of America Merrill Lynch Power and Gas Leaders Conference in New York City said the current economic and public policy landscape is just too uncertain.

While there might be some strategic advantages to seeking M&A long term if companies are like Minneapolis-based Xcel Energy Inc., Jackson, MI-based CMS Energy Corp. or Phoenix-based Pinnacle West Capital Corp., senior executives from those utility holding companies told financial analysts that it didn’t make sense to them at this time.

“It would be nice to be bigger,” said Xcel CEO Ben Fowke. “But considering the price you pay to be bigger, you have to be very cautious. When we look at our own situation, we have great organic growth, and the tradeoffs of trying to get bigger through M&A often just don’t make sense when you do the math.

“We ‘never say never’ and are very interested in acquisitions, such as the [natural gas-fired] power plant we bought from Calpine [Corp.] in Colorado, but that is just growing rate base.”

CMS CFO Tom Webb said “bigger is not necessarily better in all ways,” and it often depends on what you have been able to do within the size of the company you have. “Your track record in returning value is what is important,” Webb said. “If you can deliver the earnings growth within a certain type rate structure year after year, and you do it through different [regulatory] commissioners over time, that tells you something about the company that I think people have confidence in.”

Webb acknowledged that smaller capitalized companies will often seek the “protection” of a larger entity. “During tough times, people will run for safe havens.”

M&A is viewed much differently in the West, according to Pinnacle West CFO Jim Hatfield. “We’d like to get bigger to weather a lot more storms, but I would point out with our growth and rate agenda our ability to push that aside to try to get a merger transaction through the [Arizona Corporation] commission wouldn’t be worth the risk…I’m not sure the environment would be very receptive to a merger at this point.”

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