Go big or go home: GE and Baker Hughes merge

Just days after speculation began, GE announced its intention to merge its oil and gas business with oilfield services giant Baker Hughes. 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. In our latest report and Crude for Thought podcast, our analysts discuss what we can expect from this newly formed production optimization giant.

The publicly listed partnership — 62.5% owned by GE and 37.5% 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. We analyze the short- and long-term effects of potential pricing and cost scenarios on US oil production in our latest insight.

In this week's Crude for Thought podcast, host R.T. Dukes talks with analysts Jonathan Garrett and Caitlin Shaw about what they expect from the new Baker Hughes. 

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. We expect 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, we 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. 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.

In the news
See what our analysts are saying about the GE and Baker Hughes merger in the world's most trusted media outlets.

In the news
CNBC: Nightly Business Report – October 31, 2016

In the news
Associated Press: GE, Baker Hughes create powerful new player in energy sector

In the news
The New York Times: General Electric Plans to Merge Its Oil and Gas Division With Baker Hughes

In the news
Rigzone: GE, Baker Hughes $30 Billion 'Shrewd Move' Could Avert Anti-Trust Issues

Read more: push-and-pull relationship of US E&Ps 
You can purchase our full US Upstream Week In Brief on demand to read this week's top stories in the North America Upstream sector, including Oxy expanding its Permian position; CONSOL and Noble parting ways; Anadarko preparing to develop Constellation; and coal and shale gas competing for the market.

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