GE Weighs Baker Hughes Partnership as Oil Giants Pilot Slump

  • Discussions don’t include an ‘outright purchase,’ GE says
  • Halliburton-Baker Hughes deal fell apart earlier this year

GE in Talks With Baker Hughes on Partnerships

Months after General Electric Co. considered a potential deal for Baker Hughes Inc. assets, the pair are in talks to form unspecified “partnerships” as oilfield equipment makers and service providers grapple with an extended rout in energy prices.

The discussions are ongoing but GE isn’t weighing “an outright purchase,” spokeswoman Deirdre Latour said Thursday in a statement. GE held talks earlier this year about buying pieces of Baker Hughes that would have been divested under a pending merger with Halliburton Co. -- a deal that eventually collapsed. Baker Hughes acknowledged the talks with GE for the first time on Friday.

"Our policy is to not comment on such speculation," Martin Craighead, chief executive officer at Baker Hughes, wrote in a letter included in a Friday federal filing. "However, in light of the potential distractions this might create, I want to clarify that while we have been in discussions with GE, nothing is concluded and there is no guarantee anything will be concluded."

A partnership with Baker Hughes could resemble collaborations GE has entered into recently with Diamond Offshore Drilling Inc. and National Oilwell Varco Inc. to distribute risk, improve aftermarket sales and share technology, said Nicholas Heymann, an analyst at William Blair & Co. Amid the industry downturn, oil and gas producers “have eagerly encouraged their exploration and production equipment suppliers to consider ways to sharply reduce the capital intensity of energy companies’ operations,” he said in a note.

Partnership Trend

Oilfield contractors are increasingly turning to partnerships in an effort to cut costs and offer oil explorers more streamlined and comprehensive options for the services and gear needed to siphon crude out of the ground. Service providers and equipment makers have been asked by their customers to find ways to make the process more efficient.

Baker Hughes jumped as much as 20 percent in after-hours trading Thursday in New York following a Wall Street Journal report saying GE was in talks to buy Baker Hughes, which cited people familiar with the matter. The shares pared most of the gains after GE said it isn’t weighing an acquisition. Baker Hughes rose 6 percent to $57.81 at 9:46 a.m. Friday in New York, while GE advanced 2 percent to $29.19.

Melanie Kania, a spokeswoman for Baker Hughes, declined to comment.

Earlier Talks

Baker Hughes terminated plans to be acquired by Halliburton earlier this year after failing to win antitrust approval from regulators around the world. GE acknowledged that it had held talks about possibly bidding for parts of Baker Hughes that Halliburton was seeking to unload for the deal.

A Baker Hughes-GE partnership would compete more effectively with the world’s top oilfield-services provider, Schlumberger Ltd., Richard Spears, vice president at the Tulsa-based oilfield consultant Spears & Associates, said Thursday in a phone interview. Schlumberger recently bought equipment maker Cameron International.

GE has expanded its oil and gas business in recent years through more than $10 billion in acquisitions, making it the company’s fourth-largest division. Yet, within the world of oilfield services and equipment manufacturing, Boston-based GE ranked 11th, according to April data from Spears & Associates.

Sales in GE’s oil and gas unit fell 25 percent in the third quarter, the most in the company’s industrial divisions. Executives have said the company, which could add as much $20 billion of new debt to support growth efforts, is open to deals and would like to be opportunistic during the oil market slump. GE Chief Executive Officer Jeffrey Immelt said in May that “I don’t feel like we need to do anything dramatic in oil and gas.”

‘Strategic Logic’

A partnership between GE and Baker Hughes “would have strategic logic, given there would be considerable complementarity of product offerings,” Julian Mitchell, an analyst with Credit Suisse Group AG, said Thursday in a note. A full acquisition may not make sense, he said, due to the size of such a deal and questions over whether Baker Hughes shareholders would support it.

The oil-services and equipment sectors have been among the hardest hit in the two-year downturn, contributing the largest chunk of the more than 350,000 jobs slashed globally.

At least 100 North American oilfield services companies have gone bankrupt in 2015 and 2016 as energy prices slid, according to a tally by law firm Haynes & Boone. Exploration customers were forced to cut an unprecedented amount of spending over the past two years to cope with the oil industry’s worst financial crisis in a generation.

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