Jan. 8 (Bloomberg) -- General Electric Co. agreed to buy drilling-equipment maker Vetco Gray Inc. for $1.9 billion as dwindling oil and gas reserves prompt energy companies to boost investment in opening new fields.

GE will add 5,000 employees in more than 30 countries, including plants in Scotland, Brazil and Singapore, by acquiring Houston-based Vetco from 3i Group Plc, JPMorgan Partners LLC and Candover Investments Plc, the companies said today.

Buying Vetco will swell sales at GE's oil and gas unit by $1.6 billion, or 36 percent, as Chief Executive Officer Jeffrey Immelt seeks to capitalize on growing demand for petroleum and natural gas exploration. Governments and companies may spend $20 trillion through 2030 for power plants and transmission, biofuels and exploration, the International Energy Agency said Nov. 7.

``Strategically it's a good buy,'' said Keith Morris, an oil-services analyst at Evolution Securities Ltd. in London. ``GE wanted a market leader and Vetco has a strong reputation for supplying wellhead equipment.''

Shares of Fairfield, Connecticut-based GE slipped 1 cent to $37.55 in New York Stock Exchange trading at 4:01 p.m. The stock has gained 5.9 percent in the past 12 months for a market value of $387 billion, making GE the world's second-biggest company after oil producer Exxon Mobil Corp.

Rigs, Pipelines

Vetco's sales probably rose 18 percent last year, the sellers said. The company makes equipment for surface and sub-sea drilling, together with valves and chokes and components for oil rigs and pipelines, according to its Web site. Sales at GE's oil and gas unit probably rose 24 percent to $4.5 billion in 2006, the company forecast in November.

``We believe that GE had been trying to acquire Vetco Gray for a while,'' New York-based Bank of America analyst Robert McCarthy wrote in a note to clients. He has a ``buy'' rating on the stock. ``The transaction builds on GE's current oil and gas platform and gives it a solid global presence.''

Producers including BP Plc have increased capital spending to take advantage of an oil-price boom as they seek to bolster fossil-fuel deposits. Global proven oil reserves were little changed in 2005, rising just 0.6 percent to 1.2007 trillion barrels, compared with a 9 percent gain in 2002, London-based BP said in its latest Statistical Review of World Energy.

That's led to a jump in charges for equipment such as ultra- deep-water drilling rigs, which now cost $500,000 a day to hire, more than double the price two years ago, BP's report said.

The International Energy Agency's report estimates oil and gas investments alone will cost a combined $8.2 trillion of the total forecast, according to the November report.

Vetco has 20 percent to 25 percent of the $7.5 billion subsea drilling market, estimated John Inch, a Merrill Lynch analyst who has a ``neutral'' rating on GE.

`Interesting Sector'

``It's definitely an interesting sector at the moment, especially the offshore part,'' said Manfred Jaisfeld, an analyst at National-Bank AG in Essen, Germany, with a ``buy'' recommendation on GE stock.

GE entered the oil and gas business in 1994 after buying Italy's Nuovo Pignone. The unit, based in Florence, provided $3.6 billion of the group's $149.7 billion in revenue in 2005.

GE last year began reporting the division's results separately from its energy business. The operation provides pumps, compressors and services for production, transportation, storage, refining and distribution. It also offers pipeline integrity inspection, analysis and asset-management services.

``This acquisition enables GE to seize faster growth in a rapidly expanding global business,'' said Claudi Santiago, CEO of GE Oil & Gas.

3i, Candover and JPMorgan Partners LLC will earn about three and a half times their original investment in Vetco, less than three years after they bought it from ABB Ltd. of Switzerland in a deal that valued the company at $925 million.

Investments Repaid

Buyout firms use debt secured on the companies they buy and money from their own funds to pay for takeovers. They then seek to improve profit by boosting sales, selling assets and cutting costs before selling the companies within less than five years.

The three firms used $420 million of cash to fund the takeover and have since been repaid their original investment in two dividends. The buyout firms will also keep Vetco Aibel, a company that designs and builds oil and gas production plants.

JPMorgan Partners LLC was a unit of the third-biggest U.S. bank. In 2005, the bank said it would spin off the division to avoid bidding against its biggest investment-banking clients, the largest buyout firms such as Blackstone Group LP and Kohlberg Kravis Roberts & Co.

3i is Europe's biggest publicly traded buyout firm and targets companies with as much as 1 billion euros ($1.3 billion) in market value. London-based Candover manages a 3.5 billion-euro fund. Its investments include Gala Goral, the U.K.'s largest bingo operator, and publisher Springer Science + Business Media.

Advisers

Lehman Brothers Holdings Inc. advised the sellers, while JPMorgan advised JPMorgan Partners.

Credit-default swap contracts based on $10 million euros of debt at the GE's finance unit fell to $12,014 on Jan. 5 from $12,070 the day before, according to data compiled by Bloomberg.

Credit-default swaps are financial instruments based on corporate bonds and loans that are used to speculate on a company's ability to repay debt. An increase indicates deteriorating credit quality, a decrease an improvement.

Moody's Investors Service and Standard & Poor's rank GE's debt Aaa, the highest rating possible.

To contact the reporters on this story: Rachel Layne in Boston at rlayne@bloomberg.net; Edward Evans in London at eevans3@bloomberg.net.

Last Updated: January 8, 2007 16:07 EST