BHGE: A force to reckon with in the O&G sector

BHGE: A force to reckon with in the O&G sector
Lorenzo Simonelli, CEO of Baker Hughes, a GE Company
Published: 8 November 2017 - 5 a.m.
By: Indrajit Sen

News about mergers and acquisitions (M&A) in the oil and gas industry have become frequent in recent times, as stakeholders in the energy sector seek to drive optimisation of resources to achieve operational excellence. In most cases however, it is the larger party with the greater financial strength that acquires the smaller entity, to gain control of the latter’s portfolio and client base. A merger of equals, whereby the deal is not just about the big player winning over the smaller one, but more about integration of the common value systems, seldom happens.

Such a merger between two oilfield services majors – GE Oil & Gas and Baker Hughes – was successfully completed in July this year, as the management of both the American companies had envisaged – thereby creating a giant products and services provider, capable of serving the full spectrum of the global oil and gas industry. The formation of Baker Hughes, a GE Company (BHGE) – an organisation with headquarters in both London and Houston, and with a capacity to generate $23bn in annual revenues – is a tale of synergies between the cultures of driving technology and innovation of these two companies.

“When you look at the heritage of these companies, you have (Thomas Alva) Edison on one side, and (Reuben C) Baker and (Howard R) Hughes on the other – so huge engineering and technological icons really,” Lorenzo Simonelli, the chariman, president and CEO of Baker Hughes, said in reflection of the rich legacy of the two firms.

The collaboration of the two companies at the global level has meant that Simonelli, a native of Tuscany, Italy, is leading an enterprise that does business in 120 countries and has a burgeoning workforce of 70,000. Also, General Electric (GE) having forays into major industrial sectors like power, healthcare, aviation, transport, etc, implies that BHGE has the capability to partner with governments to assist in the development of infrastructure, beyond just the provision of oil and gas services in those countries.

It should come as no surprise that an oilfield services company as valuable as Baker Hughes, had been courted by several of its peers for a merger; so the road to acquiring the company may not have been smooth for GE Oil & Gas. The very fact that the GE management had set its sight on Baker Hughes, and then undertook all the pains to ensure a successful merger, does speak volumes about the leadership’s overall rationale and larger intention behind the acquisition.

“The reason for the merger was due to us (GE Oil & Gas) looking at what was happening in the industry in relation to our customers. If you look at the evolution of the oil and gas industry, there was a constant effort being made towards ‘how do we drive productivity in the industry’. That means aiming for better outcomes, increasing production and reducing non-productive time. Our view was that there was a real opportunity to continue to drive integration and reduce the silos within the supply chain, and improve the value chain being provided to our customers,” Simonelli told me over the phone in an exclusive interview.

“The aspects of (GE Oil & Gas) moving into full-fledged oilfield services was always contemplated. The strategy was to broaden the scope of our oil and gas offering. It all stems from our technology and equipment heritage, and our urge to expand. If you look at the history of GE Oil & Gas over the course of the last 20 years, it’s been a story of continuing to broaden the portfolio. With regards to the acquisition and beating the competition for it, Baker Hughes offered a structure that made sense (to GE Oil & Gas’ management),” Simonelli said in explanation of the logic that triggered the acquisition efforts.

The BHGE CEO continued: “So this evolution (of the oil and gas sector) has meant that we can play a long-term, beneficial role for our customers, and at the same time provide increased technologies from the GE store – in domains such as digital and 3D printing. As a result of the merger (with Baker Hughes) our portfolio has only become more robust, and created a unique offering in the marketplace. We have more capabilities to serve our customers and offer them better outcomes.”

Combining the portfolios of the two companies involved in the merger, to form a common pool of resources to better serve customers, is the prime objective of any company making an acquisition. The integration of the oil and gas offerings of Baker Hughes and GE Oil & Gas has therefore given BHGE control of an exhaustive range of products, services and technologies that makes its portfolio comprehensive and cutting-edge – a fact by virtue of which BHGE, despite being a newly-formed company, clinched the No 2 rank in O&GME’s inaugural ‘Top 30 Oilfield Services Companies list 2017’ (published in the September issue).

Simonelli elaborates: “When you look at what we’ve been able to combine, there is now a company that is truly ‘fullstream’. From the aspect of drilling services, being able to go into the reservoir and manage the reservoir, then being able to complete the valve and produce from the valve, and then being able to manage the valve throughout its lifecycle, is what we are able to perform. Also, moving the produce to the refinery or to a power generation plant and be able to optimise the value of every molecule for something good for humankind, is what we have been able to achieve. Integration of the value chain is what we are driving.”

A ‘fullstream’ offering

In a bid to position themselves as market leaders and establish their potential to serve the complex issues of their oil and gas clients, a number of oilfield services companies today claim to offer a ‘fullstream’ portfolio, although the criteria for what actually constitutes as a ‘fullstream offering’ remains a bit uncertain. Simonelli explains what the context of the term ‘fullstream’ ideally is, and claims why BHGE does command the ability to serve the energy sector in a holistic manner: “If you to look at it (the term ‘fullstream’) from the standpoint of driving productivity for our customers, that means extracting the most value from the molecule. This can be achieved through upstream, midstream and downstream services. We were one of the first companies to coin the term ‘fullstream’. If you look at the actual scope of the term ‘fullstream’ we are the ones that can attest to live up to it.”

Simonelli, an alumnus of Cardiff University in Wales, UK, continued: “When you look at upstream, we have the subsea capability for deepwater projects. We have the onshore capability, if you look at our lifting equipment range, from rigless systems to electrical submersible pumps (ESPs). You can also look at our drilling services, the chemicals, the fluids, the wireline, and there is no lack of capabilities when it comes to the upstream components. Then we have our midstream services, where we offer services in the compression segment, with the compressors we have. We have the potential to provide power wherever necessary, through our gas turbines, for which we leverage the strength of GE Power, to convert the initial gas molecule extracted to generate power. If you are thinking of stringing our range of services across the upstream, midstream and downstream segments, we can actually do that.”

“You can only be ‘fullstream’ by interconnecting the silos and the elements of upstream, midstream and downstream, and how you can help drive productivity,” Simonelli said he believes. “I’ll give you an example: when you drill a well, you see productivity in drilling it for the first time. It’s about connecting the information that you have in the reservoir, connecting the information that you gather while drilling the well through a drill bit, which matters. Data collected right from the drilling of the well to completion to lifting of the molecule, will tell you what the best lifting equipment would be to use for the next five years. We have Intellistream, which utilises data to optimise production from existing wells. Similarly, when you look at driving chemicals-based enhanced oil recovery by understanding the reservoir – again that is by utilising data.”

When asked to talk about products and technologies from within BHGE’s portfolio, that are particularly relevant for the company’s customers in the MENA region, Simonelli said: “Thinking about new upstream technologies, we are looking at new deployments that drive productivity. We are also looking at a multi-stage pumping technology, and surface extraction technology. We are making sure that ESPs are dramatically reduced, so are the intervention costs and the downtime. Our technologies are also about improving drilling and recovery of gas from deepwater horizontal gas wells. We also have AutoTrak, which develops drilling capability, and PulseTrak, which is a dynamic event modelling software that helps in completing and channelising the well.”

“So we have quite a varied and diverse portfolio when it comes to the upstream segment. I love all my children equally,” the CEO quipped, referring to the BHGE products as his “children”.

The impressive track record of both GE Oil & Gas and Baker Hughes of working with all major NOCs in the region, is another legacy that BHGE has inherited. “We have been present in the Middle East ever since natural resources were found; in fact in some of the countries we were part of drilling the first well if you go back in history. Over the 80 years, we’ve worked hand-in-hand with the companies here. We have over 6,000 employees and operate a number of facilities. We are local, and produce many of our components like wellheads, compressors, etc, locally,” Simonelli stated.

“In Algeria, for example, we have a partnership with Sonatrach. In Iraq, we have a facility in Rumaila. We have expanded in Egypt to cater to the developments around the Zohr (offshore gas) field, in terms of the subsea requirements. Actually that makes for a good story as this project brings to task the fullstream offering of BHGE, whereby we are helping the operator drill the well and also complete it,” he revealed.

The propensity to develop technologies locally for the regional industry’s typical requirements, is an advantage that Simonelli feels separates BHGE from its rivals. “The other relationship we have with this region is in terms of (developing) technology – we have relationships with the different universities and the different centres here, especially with the King Khaled University with which we work to develop solutions for Saudi Aramco and the kingdom. We also run key facilities in the region, including the one in Dhahran Techno Valley (DTV) in Saudi Arabia, and a remote monitoring diagnostic centre in the UAE. We are continuously developing technology required for the regional industry. I can’t think of one area that we are not present in.”

With the importance of digitalisation rising rapidly, digital technologies have begun playing a key role in not just upstream operations, but also in aspects such as asset management and overall project management. Oilfield services players that have a wide range of digital and automation offerings are the ones that stand to gain in the current market scenario, and Simonelli is ensuring that BHGE offers a healthy mix of conventional and digital products as part of its portfolio. “We look to satisfy our customers and we do what our customers need us to do. Whether it be a case of offering conventional or digital (services), we offer both. We think there is an opportunity for digital-based technologies to offer more productivity and help our customers with better outcomes,” he said.

In his opinion, “There are two areas that continue to dramatically transform the industry: one is Big Data and the Industrial Internet of Things (IIoT). The usage of Big Data in meaningful decision-making, is going to be transformative for the industry. Today, just 1-2% of the data that is generated is being used for decision-making. We have to take that to a new level and I think we have the capability to do that. Then, you (ought to) look at additives and the usage of additives in our products and services manufacturing. 3D printing is going to be localised and it is going to enable faster turnaround times.”

“I think those two are key things that are going to change the industry going forward. And they are going to enable incremental production from existing wells, enable quicker reaction times, and bring down the costs to drive productivity and reliability in the industry.”

Companies across the board in the oil and gas industry, from owner-operators to EPC contractors to oilfield services players, seem to have found M&A to be an effective strategy not just for expansion, but also for achieving operational excellence. With regards to BHGE, Simonelli does reveal that he “will always look at opportunities that are inorganic in nature, as a way to grow,” although he declines to comment on a certain rumour doing the rounds in industry circles about BHGE being in acquisition negotiations with UK-based offshore EPC contracting firm Subsea 7. At present, he says the “key focus of BHGE is to let the integration successfully bear fruit, to focus on what we can deliver and the synergies that will help us deliver better. That’s the key focus of the operational team, and that’s what I oversee day-in and day-out.”

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