Industry is undergoing shift from exploration to development and now asset optimization
Just days after speculation began, GE announced its intention to merge its oil and gas business with oilfield services giant Baker Hughes, according to Wood Mackenzie.
This merger will join the two companies’ complementary strengths, and GE and Baker Hughes cite an estimated US$1.6 billion in cost synergies by 2020.
The publicly listed partnership — 62.5 per cent owned by GE and 37.5 per cent by Baker Hughes — is an unusual move for GE, which has traditionally leaned heavily toward an acquisition-based business strategy.
However, to achieve scale in North America and deliver service-based growth, GE will benefit from Baker Hughes’s sizable North American footprint.
As a result of the merger, we expect Baker Hughes to have a stronger influence in the Lower 48 in the short term, while GE will continue to capitalize on its strengths internationally and offshore.
Wood Mackenzie analyzes the short- and long-term effects of potential pricing and cost scenarios on US oil production in their latest insight.
Post-merger, GE’s sourcing and manufacturing organization will leverage its global purchasing power to lower costs, while Baker Hughes will focus on tools and services that help upstream companies more efficiently manage their operating costs.
As competitors have fought for market share in the hydraulic fracturing segment, Baker Hughes will continue to direct investment into compressors, artificial lift mechanisms, wellheads and surface equipment.
Wood Mackenzie expects the demand for these products and services — as well as cost inflation — to rise in 2017. As upstream operators begin to set their budgets for next year, they expect much of these budgets to be devoted to efficiently maintaining production as Lower 48 production recommences growth.
The industry is undergoing a shift from exploration to development and now to asset optimization.
With drilling and completion activity expected to remain well below the previous peak, there will be extra emphasis on flow management from wells already on production, according to the Wood Mackenzie analysis.
Baker Hughes’s line of products and services will support that strategy, as will GE’s commitment to innovation, such as the digitization of hardware and the GE Store — GE’s digital marketplace which provides a means to advertise and introduce customers to new tools and services.