GE has said it is evaluating exit options on Baker Hughes just four months after the merger of its oil and gas business with the Houston-based oilfield services company.
The merger of GE Oil & Gas with Baker Hughes (BHGE) became effective on July 3 this year with aim to be the first and only company to bring together industry-leading equipment, services and digital solutions across the entire spectrum of oil and gas development.
GE owns approximately 62.5% of BHGE, and retains five designated seats on the BHGE board.
However, following ‘disappointing’ results GE reported for the Q3 2017, the newly-formed finance and capital allocation committee has been given its first task to explore GE’s exit strategy on Baker Hughes.
John Flannery, GE’s Chairman and CEO said: “The problem and challenge that we have in this business is the cyclicality and the commodity nature of the business. So it tends to overwhelm a lot of the management actions and you’ve seen that in this business going forward. So a strong business, a lot of commodity and risk exposure.”
“We own 62.5% of BHGE, which means we consolidate 100% of their orders, revenues, and cash flow from operating activities. However, the segment operating profit and net income are net of 37.5% minority interest attributable to Baker Hughes’ Class A shareholders. Also, the operating profit we report for oil and gas is adjusted for GE reporting conventions, such as excluding restructuring and BD charges. Therefore, our 62.5% of profit will differ from what BHGE shows as operating income,” explained Jeff Bornstein, GE’s vice chairman and outgoing CFO in the company’s Q3 2017 earnings report.
Following the merger, BHGE, led by Lorenzo Simonelli, was awarded a second contract for Eni East Africa’s (EEA) Coral South FLNG development, offshore Mozambique and a major subsea contract from Petrobel for phase two of the “supergiant” Zohr gas field in the Mediterranean Sea, off the Egyptian coast.
The company had also reportedly held talks with the London-based offshore engineering, construction and services player Subsea 7 about a possible acquisition, but it was said that the talks between the two companies broke down over price.
To remind, Baker Hughes reported Q3 2017 net loss per share of 24 cents on revenue of $5.4 billion for the quarter, down 1% sequentially and flat year-over-year on a combined business basis.
“So it goes back, I’d say, to the origins of the deal. It will be determined going forward. There’s no decision made formally by us. And obviously, we’d have to interact with Baker Hughes prior to 2019,” concluded Flannery during investors presentation on Monday, November 13, 2017.
Subsea World News Staff