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Friday, August 29, 2014

Analyst: GE’s Acquisition of Lufkin Part of Transformation to Integrated Oilfield Services

GE Oil & Gas logoGE has an agreement to acquire Lufkin Industries, the oilfield equipment maker, for more than $3 billion, according to numerous reports. The move is being widely seen as a continuation of the conglomerate’s evolution to a more focused heavy-industry giant, operating in the oil-and-gas and other energy-related industries.

Lufkin, based in Lufkin, Texas, makes pumping equipment including beam pumps, as well as hydraulic submersible pumps, power transmission equipment and well automation systems. A Bloomberg article cited sources saying the deal will more than double GE’s share of the artificial lift equipment market, to about 15 percent, while USA Today reported that the company is putting particular focus on oil and gas to capitalize on the boom in deep offshore and shale extraction.

According to the USA Today piece, GE’s oil-and-gas-related revenue has tripled since 2005 to $15 billion. Meanwhile, the company has announced a $110 million, 125-employee research lab in Oklahoma City to develop improved oil and gas extraction methods.

That investment coincides with GE’s busy acquisition slate, as it buys equipment makers operating in the oil-and-gas industry. Bloomberg noted that the company spent $11 billion in acquisitions during a six-month period ended in 2011, with USA Today citing flexible pipe maker Wellstream and pump and control systems maker John Wood Group.

“GE’s acquisition of Lufkin Industries is a continuation of longer term strategy of the company of boosting industrial profits,” said Chirag Rathi, a senior analyst at Frost & Sullivan, the Mountain View, Calif.-based market research and consultant. “Energy, especially oil and gas, has been the focus of industrial growth for GE for some time.”

Rathi continued: “GE stands to boost its share in the artificial lift solutions market. Artificial lift will continue to see robust demand as operators try to boost production using enhanced recovery methods. Lufkin’s gear manufacturing unit was already a supplier to GE’s turbo machinery division, so the acquisition of a key supplier of transmission systems gives a huge competitive. Lastly, the foundry business of Lufkin will provide benefits to the recently acquired valves portfolio and other heavy equipment manufacturing divisions.”




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