Manufacturing conglomerate General Electric will combine its oil-and-gas business with energy services provider Baker Hughes in a deal that structures the new publicly traded entity as a partnership jointly owned by each company’s shareholders.

The deal comes nearly six months after Baker Hughes’ previous merger agreement with rival Halliburton collapsed following a regulatory fight with the U.S. government.

It also comes as GE seeks to remake itself as a company more narrowly focused on digital technology solutions, having already greatly reduced its GE Capital division and sold its appliance business. GE CEO Jeff Immelt revealed Monday that the company is also in discussion with potential buyers to sell its water products business, with annual earnings before interest, taxes, depreciation and amortization of $250 million to $350 million.

Baker Hughes is still reeling from oil’s devastating slide below $30 per barrel earlier this year — despite a recent recovery to about $50 — which has led companies to seek consolidation opportunities to navigate the rough terrain. Baker Hughes’ revenue through the first nine quarters of 2016 fell 39.8% to $7.4 billion, compared with a year earlier, while its net loss widened from $936 million to $2.3 billion.

GE and Baker Hughes said the new company would have $32 billion in annual revenue and employ about 70,000 people. The companies expect to achieve $1.6 billion in annual “synergies” — which typically include cost cuts and combined purchasing power — by 2020.

The synergies amount to $1.2 billion in costs and $400 million in revenue opportunities, according to a presentation prepared for investors. The companies expect to complete the deal by mid-2017.

GE shareholders will own 62.5% of what the companies called “the new Baker Hughes.” Current shareholders of Baker Hughes will be apportioned 37.5% of the new entity and will receive a one-time special dividend of $17.50 per share.

The dividend payment will cost GE $7.4 billion, but it could be worth it to shed a unit that has dragged down the company in recent quarters. The oil and gas division’s third-quarter revenue slumped 24.7% to $2.96 billion and its operating profit plunged 42.1% to $353 million.

 

“We’ll have scale, diversification and a great team,” Immelt said on a conference call. “The new company is exceptionally well positioned to serve our customers.”

Baker Hughes shares jumped 8.7% to $64.26 in pre-market trading but the gains didn’t last. Shares dove 6.3% to close at $55.40. GE shares edged 0.4% lower to $29.10.

With operations in more than 120 countries, the combined company will maintain dual headquarters in Houston and London.

Immelt will become chairman of the new company, and GE Oil and Gas CEO Lorenzo Simonelli will retain that title with the combined entity. Baker Hughes’ chairman and CEO, Martin Craighead, will become vice chairman of the new company.

Of the nine board members of the new company, GE will appoint five and Baker Hughes four.

Craighead said the deal is particularly appealing because of the opportunities afforded by GE’s digital capability, including software that enhances data analysis viewed as critical to energy industry’s future.

“We see an opportunity to unleash the power of digitization and data that has long been anticipated in the oil and gas sector,” Craighead told investors.

Still, the combined company may not fare much better if oil prices languish. The commodity’s slide over the last two years has pelted companies across the sector, but Craighead said the new Baker Hughes “will be far more resilient and cycle resistant,” with a presence in upstream, midstream and downstream oil.

Immelt said the deal projects oil prices of $45 to $60 per barrel through 2019, with a steady uptick over that period.

GE’s oil and gas division includes surface wellheads, downhole tools, subsea systems, compressors, turbines, measurement equipment and services. Baker Hughes’ business includes drilling services, oil well construction, completion equipment and reservoir analysis.

The company had agreed in late 2014 to a merger with Halliburton. But they nixed the deal in early May 2016 after the Obama administration filed a lawsuit seeking to block the accord as a violation of anti-trust laws.

Although regulators will need to sign off on the new deal, Simonelli told investors that there’s “minimal overlap” between the two companies and “we feel confident” the deal will clear antitrust scrutiny.

Baker Hughes collected a consolation prize, however: a $3.5 billion breakup fee from Halliburton.

 

 

Subsidy removal saves govt N16.4bn monthly – Kachikwu

Dr. Emmanuel Ibe Kachikwu

The Minister of State for Petroleum Resources, Dr. Emmanuel Ibe Kachikwu, has said the federal government would have had to shop for N16.4 billion every month to offset subsidy claims of petrol marketers if it had not taken the decision to remove subsidy on fuel consumption.

Kachikwu explained in a tweet on his twitter handle @ibekachikwu that as at the time the government made the decision to end subsidy on petrol and subsequently hiked the pump price, it was incurring about N13.7k as subsidy on each litre of petrol bought by Nigerians.

He said at such rate, government would have paid out N16.4 billion to marketers monthly, adding that the government does not have such fund in its 2016 budget, more so now that the country’s earning from crude oil production has dropped.

THISDAY monitored the minister’s tweet weekend in Abuja where he tried to justify the new framework for petroleum supply, distribution and pricing. He also listed the benefits of the new policy.

“There is no provision for subsidy in 2016 appropriation. As at today, the current PMS price of N86.50 gives an estimated subsidy claim of N13.7 per litre which translates to N16.4 billion monthly. There is no funding or appropriation to cover this,” said the minister in the tweet.

He further stated: “NNPC has continued to utilise crude oil volumes outside the 445,000 barrels per day, thereby creating major funding and remittances gaps into the federation account.”

Kachikwu also said renewed insurgency and pipeline breaks in the Niger Delta has resulted to Nigeria’s daily crude oil production dropping to 1.65 million barrels per day (mbpd) as against the 2.2mbpd that was projected in the 2016 budget.

He said this has reduced government’s earnings and foreign exchange build ups to perhaps support subsidy on importation of petrol into the country.

He equally listed the benefits of the new policy, saying that going forward, 100 per cent payment to the federation account on the allocated 445,000bpd of crude oil to the Nigerian National Petroleum Corporation (NNPC) would be assured and tailored to provide palliative measures for the country.

He also said the policy will encourage market stability in the downstream petroleum sector; stabilise fuel supply in the country; discourage hoarding of products and reignite investors’ interests in setting up refineries in the country to cut importation of petroleum products.

Meanwhile a former energy and mines minister of Venezuela, Dr. Alirio Parra has described the recent decision of the government on Nigeria’s downstream petroleum sector as historic and smart.

Parra who is also a member of the global oil industry outfit, CWC Group, stated at a forum in Abuja over the weekend that the liberalisation of the downstream sector in the oil industry is a bold testament to the fact that oil is a market-driven commodity.

A statement from the Group General Manager, Public Affairs of the Nigerian National Petroleum Corporation (NNPC), Mallam Garuba Deen Muhammad stated this.

According to Parra in the statement: “One really important change in the oil and gas industry in Nigeria is the decision by the federal government to open the domestic market for competition.

“I am not necessarily talking about the elimination of subsidy, but opening the market, is a statement that oil is market driven and that with time, it is going to be to the benefit of Nigeria, and to all Nigerians.”

He further stated that the opening of the market will in no time encourage more players to bring in petrol which would eventually lead to a new era of competitive pricing.

Source: Today.NG – https://www.today.ng/news/national/122684/subsidy-removal-saves-govt-n16-4bn-monthly-kachikwu

 

Technology key to firms’ survival in low oil price regime

 

For oil and gas stakeholders who gathered at the just concluded Offshore Technology Conference (OTC) in Houston Texas, by implementing technological solutions, the industry will be able to retain a high level of production and at much lower costs.

Along with the high-tech displays and gee-whiz presentations that highlighted the yearly event, the conference featured sessions on how to reduce operating expenses and extend the lives of aging oil and gas fields.

OTC Chairman, Joe Fowler stated that many of the 300 papers presented focused on techniques and equipment to bring down the high cost of offshore drilling to make it more competitive in a low-price environment.

More than 68,000 attendees from 120 countries gathered at the yearly conference, placing 2016’s OTC among the top 15 highest attended in its 48-year history.

Speaking at the event, the Chairman of PETAN, Mazi Bank-Anthony Okoroafor, emphasized the need for oil and gas operators to invest in technological advancement to effect cost reduction.

He also stressed the need for focus to be placed on existing in-country capacity instead of patronage.

He added that the country should actively pursue reserves and production growth, which he said, has been on the decline.

Okoroafor emphasized on leveraging proven Nigerian companies and in-country capacity building, adding that proper implementation of the Nigerian oil and gas industry content development will significantly drive down the cost of doing business in the oil industry and cushion the effects of the low prices.

He stated: “The industry has operated under the local content Act regime for six years now, there is the need to take a closer look at the implementation strategy to ensure it is delivering the desired value to various industry stakeholders in particular and the Nigerian populace in general, proper implementation of local content will lead to massive economic transformation of our great nation”.

Chairman, PETAN Conference Committee, Ranti Omole, stated that based on the belief of indigenous companies, the association is partnering to reduce cost of operations and projects in Nigeria through increased local patronage.

He stated: “The industry has been undergoing challenging and turbulent period for the past two years due to low prices of crude oil and low demand. This has resulted in severe adverse consequences in the industry as well as on the economy of many oil producing nations including our country. This has led major players in the industry to rationalize their operations, seek efficiencies and cost saving measures to ensure profitability and survival of their businesses.”

The Acting Executive Secretary, Nigerian Content Development and Monitoring Board, Daziba Obah, said with the right support and environment, indigenous companies are best positioned to provide services and process at most lower cost without compromise to standards.

Obah added that there is opportunity to leverage the low value of the naira to source services, technology and solutions local at much cheaper cost.

He noted that there will be much more cost savings if operators develop increased project management capabilities to manage projects. “Operators will save costs by optimizing existing facilities and improving maintenance efficiencies.

Dwelling on the role of the Federal Government to help save the indigenous companies from the pangs of crude oil prices, former Chairman of PETAN, Emeka Ene, he said that there is need to develop the steel sector for local production of steel billets, coils and plates.

Ene added that government should accelerate gas infrastructure along source corridors to ease availability of the commodity in oil and gas parks, oil and gas free zones and other manufacturing locations supporting oil and gas activities.

He stated: “There is need to engage relevant agencies to foster cordial and seamless working relationship with respect to expatriate quota and issuance of work permit. There should also be a periodic industry-wide capacity audit of local companies to establish current capacities and embark on gap closure interventions. Research and development clusters should be encouraged to promote the development of home grown technology”.

Source: Today.NG – https://www.today.ng/business/120138/technology-key-firms-survival-low-oil-price-regime

Nigeria’s oil and gas trade with Houston hits $15bn

Nigeria’s annual trade with Houston Texas in the oil and gas industry in 2015 is said to have reached $15 billion.

The Mayor of Houston, Sylvester Turner, said oil and gas trade between Nigeria and Houston is a success story because of their close tie.

Turner stated this in his special message to Nigeria’s Small Medium Enterprises (SMEs) and Houston’s Original Manufacturers (OEMs) in the 2016 Nigeria Content Investment Forum event in Houston Texas.

He explained that the existing close between Nigeria and Houston has made many oil companies having office branches or associate in Nigeria.

“330 Houston companies have businesses and trade connection with Nigeria”, Turner said noting that Houston is ranks as Nigeria largest US gate way for international trade and for greater partnership.

To further strengthen Houston/Nigeria oil and gas trade, the Houston Mayor said in 2011, United Airlines opened a direct flight in Nigeria from Houston to Lagos, linking two major energy cities.

“This flight has already promoted robust connections. Houstonians and Nigerian alike have benefited greatly from this connection,” he said.

Source: Today.NG – https://www.today.ng/business/117178/nigerias-oil-gas-trade-houston-hits-15bn