GE announced that its Oil & Gas business has entered into an agreement to acquire the Well Support division of UK based John Wood Group PLC (Wood Group) for approximately US$2.8 billion. The transaction is expected to close later in 2011.
With 3,800 employees, more than 20 manufacturing and multiple service centers worldwide, Wood Group’s Well Support division is comprised of three business platforms: ESP (electric submersible pumps), Pressure Control (surface wellhead and flow control systems) and Logging Services (wireline logging).
In 2010, the Well Support division recorded revenues of $947 million and earnings of $166 million, which reflected growth of 16% and 55% respectively over 2009. The division, which generated 13% average annual revenue growth over the past decade, is expected by GE to generate $1.1 billion in revenue and approximately $200 million in earnings in 2011.
Claudi Santiago, president and CEO, GE Oil & Gas said: “With world-class products and people, Wood Group’s Well Support division is an excellent strategic fit with our business model of high technology engineering, manufacturing and services. The acquisition is another major step forward for GE Oil & Gas in executing our strategy to equip and serve our global oil and gas customers with the mission-critical equipment and solutions required to address their toughest technical challenges and growth objectives.”
Allister Langlands, chief executive, John Wood Group said: “GE represents an excellent new home for the Well Support division; the combination is complementary in capabilities and technologies and will benefit employees, customers and shareholders alike.”
Entry into fast-growing ESP enhanced oil recovery segment
The proposed transaction immediately positions GE as a key player in enhanced oil recovery by adding electrical submersible pumps (ESPs) to GE’s growing portfolio of drilling and production solutions, according to a company statement.
Demand for products and services that enhance oil recovery is expected to grow significantly driven by an expected decline in production from existing wells (at roughly 6% annually) and the increasing complexity of developing new reserves. ESP deployment is one of the most effective methods of enhancing production and also one of the fastest growing segments in the oil and gas industry. ESPs will be paramount in helping oil producers meet the rising global demand for hydrocarbons, as maturing fields are expected to account for over 70% of global oil production output by 2012.
Wood Group ESP’s strength lies in high technology solutions and strong service orientation with operations in more than 50 countries worldwide.
“By drawing on 100 years of experience in rotating equipment and the capabilities of its Global Research Centers, GE will enhance performance and reliability of an already world-class product line. GE’s expertise in advanced materials, remote monitoring & diagnostics and supply chain management will further reinforce the Wood Group ESP platform,” the GE statement said.
Unconventional hydrocarbon production
Production of unconventional oil and gas is a rapidly expanding global segment. Unconventional gas production will account for 35% of the increase in global supply, while unconventional oil is expected to meet 10% of world demand by 2035. (Source: World Energy Outlook 2010, IEA)
GE believes that Wood Group’s Pressure Control platform will complement its wellhead and flow control offerings, as well as increase capabilities in the rapidly growing unconventional oil and gas segment.
Wood Group’s surface products and services is expected to add to GE’s existing set of oil and gas solutions, building on a string of recent acquisitions including Nuovo Pignone, Vetco Gray, Hydril, and Wellstream. The acquisition could help GE meet the growing customer demand for technological advancements in shale gas exploration in the North America. The shale gas industry is growing quickly and is expected to invest more than $40-$60 billion per year in the next six years in North America alone.
Worldwide, shale gas exploration is also driving demand for better well monitoring and control to optimise the use of materials and target the “sweet spots” in the rock. Better well control helps producers lower costs and become more efficient.
GE anticipates that its Wireline Logging business will also benefit from higher activity in North and South America and is showing interesting prospects for the future.
Additionally, Wood Group and GE have agreed to negotiate over the course of the next 90 days a potential commercial arrangement relating to turbo machinery servicing activities.
John Krenicki, vice chairman and president and CEO of GE Energy added:“Enhanced oil recovery and unconventional hydrocarbon resource development are energy industry mega trends with huge growth potential. The Well Support Division and Wellstream acquisitions, when combined with Vetco Gray and Hydril, position GE to take full advantage of these trends. With the completion of these recent acquisitions, our drilling and production portfolio will be comprehensive and complete at scale to better serve our global customers and deliver double digit organic growth for our investors.”
