NEWS & COMMENTARY

GE ESP - Past, Present, Future.

General Electric - ESP Electrical Submergible Pump

GE Press Release - click here for original source link

GE Further Enhances Oil & Gas Portfolio with Proposed Acquisition of the Well Support Division of John Wood Group PLC

Addition of Wood Group's electric submersible pumps and surface wellhead products:
• Provides GE with entry into the fast growing demand for enhanced oil recovery from mature oil fields using downhole pump artificial lift in brownfield developments;
• Expands GE's high-technology product and service offering in unconventional oil and gas production, with significant applications for shale gas production;
• Enables GE to accelerate technology development and provide valuable integrated solutions for global exploration & production customers.


HOUSTON, TEXAS - GE (NYSE: GE) announced today that its Oil & Gas business has entered into an agreement to acquire the Well Support division of John Wood Group PLC for approximately $2.8 billion. The transaction, which the Board of Wood Group intends to unanimously recommend to its shareholders, is expected to close later in 2011, subject to shareholders' approval and customary closing conditions.

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 EBITDA of $166 million (unaudited estimates), 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 of EBITDA in 2011. In addition, with synergies from GE Energy's global scale and broad array of solutions, GE believes the business is well positioned for significant top and bottom line growth going forward.

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 PLC 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."

Immediate GE 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.

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 boasts high technology and a strong service orientation, operating 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.

Enhancing GE's Position in 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)

Wood Group's Pressure Control platform will complement GE's 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 will enhance GE's broad set of oil and gas solutions, building on a string of successful acquisitions including Nuovo Pignone, Vetco Gray, Hydril, and Wellstream. The acquisition will help GE meet the huge customer demand for technology leadership in shale gas exploration that is growing 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 optimize the use of materials and target the "sweet spots" in the rock. Better well control helps producers lower costs and become more efficient.

The 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."


GE Oil & Gas (www.ge.com/oilandgas) is a world leader in advanced technology equipment and services for all segments of the oil and gas industry, from drilling and production, LNG, pipelines and storage to industrial power generation, refining and petrochemicals. GE Oil & Gas also provides pipeline integrity solutions, including inspection and data management, and design and manufacture wire-line and drilling measurement solutions for the oilfield services segment. As part of its 'Innovation Now' customer focus and commitment, GE Oil & Gas exploits technological innovation from other GE businesses, such as aviation and healthcare, to continuously improve oil and gas industry performance and productivity. GE Oil & Gas employs more than 12,000 people worldwide and operates in over 100 countries.

It's been the talk of the oil & gas production artificial lift industry for the past few weeks.

The John Wood Group ESP business unit based out of Oklahoma City was up for sale, together with the entire well-support WG business unit. A public news release was issued on Feb 2nd, and it became known that a number of suitors were pursuing - including General Electric and Halliburton. Emails buzzed around from office to office worldwide - with speculation if indeed it would be sold, and who would land it - would it be GE or HAL, or maybe even FMC, NOV or a long-shot smaller cap like Cameron ?

Professionals asked; Why would Halliburton want it? Why would GE be interested? Why is Wood Group selling at this time? What would be the affect on SLB, BHI and many of the other smaller ESP suppliers? And on and on. If you're interested enough to be reading this far, chances are you were part of it and somehow engaged in the community discussions.

Each person's opinion had their insights, and most all had reasons behind their guesses that made sense. The whole thing was rather interesting to many of us who've been in the industry for a long time. The artificial lift ESP industry has always been a pretty tight community of professionals, and acquisitions are inherently 'change agents' bringing something new to the old-line family gene pool.


There have been start-ups over the years. The birth of what is soon to be GE Electric Submersible Pump started with three talented ESP pioneers, businessmen and scientists. It followed the successful launch of the first generation SOS Variable Speed drive technology business enterprise subsequently sold to Hughes Centrilift in the early 1980's. With fresh investment capital in hand, and eyes on the market and what oil & gas operators wanted, it wasn't long ago (mid-1980's) that Mr. Ray Johnson together with Mssrs. Tommy Vineyard and David Divine started the predecessor of today's Wood Group ESP and tomorrow's General Electric ESP. These gentlemen most aptly named their new company ESP Inc and it was commonly referred to by many loyal customer fans as 'ESPI'.

Eventually Ray and his partners sold the business enterprise they worked so hard to build, and their loyal customers had grown to appreciate. From that point on in time, the Wood Group carried it in the market place, always lagging in the number 3 position behind Reda and Centrilift. When RayJ and Tommy ran the business, it was known for service and integrity. To know Ray and Tommy, you know that the customer and wellsite production are king, and they treat their employees and run their operations like real oilfield pros are supposed to. Operators respect and value that, and so the business grew quite rapidly during the early days under their ownership and management. However, once Ray sold and his partners sadly to say moved on - things ... well, ...ESPI just wasn't the same. And so things go.

Kudos to Wood Group in one big way. WG brought capitalization and secured that #3 spot. And while it kind of languished, it was also kind of at peace until recently in a comfortable #3. A succession of presidents came and went. Joe Brady, after his retirement from a successful career at BHI Centrilift, was brought over as the new leader and Chair. A lot of management from Centrilift left BHI and transformed the previous operations in Oklahoma City. They ran the business like they knew how from their days at Centrilift.

So, the question begs, why did Wood Group want to sell especially when the industry appears to be on a long path of great growth? Just maybe the answer lies in that market 3 position, and the amount of capital it would take to maintain that position and grow it. And what better time to sell but when prices are up and the mood very positive! That's the beauty of oilfield wisdom, sell high, buy low, and there is ALWAYS a good ole' fashioned roller coaster business cycle, if you'll just give it time. If the name of the game is return on investment (ROI) to shareholders, then congratulations to Sir Ian and no need to save a glass of champagne for me. Enjoy the $$$, and satisfaction of a good sale.

A couple other viewpoints behind the impetus to sell: Firstly, the industry is moving more towards system approach with lots of game changing technology integration - like production optimization, remote operation, and live real time surveillance. This requires lots of capital investment, and Wood Group really did not have the enterprise technology to leverage into this type of systems technology and diagnostics. SLB is in an obvious leadership position, having had the vision and management capabilities to make the $$$ investments these past 5-7 years ( Comeau, Phoenix, and others). A case can be made that BHI has been playing catch up, frantically trying to enter this organically, and from the looks of reality at the wellsites and operator locations supplied, their website marketing group appears well ahead of the curve....


oil &  gas production artificial lift - esp,gas lift,pcp,rod pump, jet pump - what is next?

PAST AND PRESENT - Setting the stage. Halliburton has been on the lookout to enter this market. The amount of time and money spent in the Middle East just this past year assessing a regional ESP manufacturer while still (as of this writing) empty handed is well known to those 'in the know'.

Organic start ups in this industry as it now stands are still achievable. Most all elements are available at common locations in China - in fact, one Chinese supplier provides essentials to 13 ESP vendors including the ones at the top. But organic is obviously not in GE's playbook. A player like GE has the mass and process efficiencies to both leverage their service and sales distribution networks, and find monetary efficiencies through streamlined management process and effective use of proven GE metrics. Ever heard of GE's adaptation since 1995 of Motorola's original Six Sigma?

In addition, organic would only add another competitor in a market place that is starting to look quite crowded ( hint - wouldn't be surprised to see some geographical consolidations this decade). So GE bought into #3, replacing Wood Group.

Wood Group up 20%

About the market price. What a premium! Just consider, before the acquisition announcement, Wood Group total market capitalization stood at just under $5 billion, and Well Support contributed only about 17% revenue and similar portion of profits. So at $2.8 billion, GE basically paid WG more than half of total capitalization to enter #3 ESP position - a handsome premium v/v the Well Support Divisions earnings ratio relative to the remainder of the WG enterprise. The ESP market sector was the franchise business pearl, while the two other Well Support divisions would merge right into GE's oil and gas supply chain. In fact, just days before the acquisition, financial industry analysts were valuing the division at just over $1B versus the 2.5 times premium multiple it actually fetched! (see news extract below from the Herald Scotland). It's no wonder that WG equity rose almost 20% when the news was announced (on Sunday) and trading opened (on Monday). The premium paid speaks for itself. This is a very strategic move by GE, and sure looks to be an interesting business case study of enterprise leveraging, efficiency management, and technology integration.

If I were a current North American ESP enterprise not in the big 3 in the marketplace without having significantly differentiating and value proven technologies, especially with global aspirations, I would seriously take into consideration a suitor's reasonable offer at this time. Heads up! The next downturn, no matter how short in duration, will be painful unless there's lots of cash and capital in the till.

extract - premium ge esp, click on foto to go to original source

As an aside, to any other oil service company looking to enter this business, there are indeed opportunities especially around the perimeter. Thoughts moving forward, - how about just get some good old fashioned consulting support if you're serious about making it happen. That should be a lesson learned to those who've been studying and dipping their toes in the hot bath water recently. There are three names mentioned above who started ESPI and know the business better than the back of their hand, and pros like that would be a good place to start. How much to pay, what to buy, and what to avoid - key considerations, if you'd just ask the pros- and they could probably do a nifty job of negotiating the deal to everyone's satisfaction. But that's another story. There's always pride and ego when poker is played. When's the last time you've witnessed a poker player bring in a first rate consultant for advice as he's playing his hand? Well, the answer is you don't because it's not allowed. But buying companies is business, and it most definitely is allowed.

So while Halliburton M&A experts studied and mulled, did GE just jump in and high bid? Nothing could be further from the truth!

General Electric has a systematic approach to their oil & gas service portfolio investment. And in a big way. Schenectady forsees a long term approach to the market, and are seizing on opportunities that meet their plan. This sets the stage for valuations and timing for investments.

Fact is that GE had its eyes on the ESP market sector for at least a few years. Evidence? Lots of examples and word on the street. For example, three years prior General Electric purchased the dotcom name GEesp.com on Mon, Feb 18, 2008. How's that for forward thinking? For you technies out there, their public DNS server listings corresponding to GEESP.com are (nothing currently on the webpage yet) : pdns1.ultradns.net pdns4.ultradns.org pdns5.ultradns.info pdns6.ultradns.co.uk ns1.netbcp.com ns2.netbcp.net pdns2.ultradns.net pdns3.ultradns.org. So you can say that for at least three years, it's been on the radar. This may have been their first and only real property purchased in the sector, until now. But they definitely had a plan in place.


future esp market share

FUTURE - what's ahead for the Big 3?

In terms of GE, recent press releases also offer glimpses into their vision (see right column). And given the evident inclination to invest in a big way, then it would be prudent to assume that the production artificial lift sector is to expect some significant internal investments down the road. Classic management business growth tools and techniques like R&D, customer intimacy by way of both the traditional distribution network of sales and service personal contact, in addition to innovative web based exchanges. What other growth tools? Consider synergies with other technology platforms in the GE portfolio, and efficiencies such as GE's Six Sigma process, etc.

Many of today's senior level managers at General Electric were around during the Jack Welch GE CEO days (retiring in 2001). Jack was famous for amongst many other metrics and enforcements, pounding the virtue of Market Share positions 1& 2. A quote from Jack Welch, "Don't play with businesses that can't win. Businesses that are number 3, number 5 in their markets - Christ couldn't fix those businesses. They're going to lose anyway." - So with that said, let's see how today's GE fixes this one.

There have been a couple of paradigm shifts this past decade that continue to unfold. With an eye on the future, SLB have invested in a big way, BHI have watched and focused on enterprise organization, and WG carried on with what they had and management understood.

What are the paradigm shifts? Namely, 1. Systems, and 2. Optimization & real time metrics.

General Electric has the enterprise capabilities to make significant technology steps into both of these oil & gas realms, and in a meaningful and valuable way.

GE and the world knows well that they are #1 in Power Gas Turbines and control systems (including retrofits) to optimize and monitor operating and efficiency characteristics. The cross over integration to ESP systems incorporating similar algorithm and HMI solutions and packaged on a similar platform is very do-able. And this type of value add will encroach on the market share of SLB and BHI in a big way, as it relates to technology. In terms of service and sales distribution, markets like the Middle East GCC should open to GE within the decade that had appeared closed to WG. Just watch.

So who's the loser? Hopefully, there will be lots of growth for a long time to come. But the industry landscape has just changed in a big way. It will take awhile - maybe a few years before it all settles in and things start moving. But then the pace will quicken.

Market report - www.ArtificialLift.pro - what lies ahead for the ESP market

Forecast: By 2020, SLB and GE dukeing it out for 1 & 2. GE utilizing its upper hand in distribution, and technology controls integration. SLB maintaining leading technology advancements and enterprise advantages, together with excellent customer interface. And SLB reopening its market share playbook by re-examining mergers and acquisitions (M&A) prospects like the Russian ESP provider Alnus, in order to add mass and geographical distribution, ahead of GE's forward advances. Good timing for Wall Street financial advisors / market analysts to be already on it studying up the Russian market and updating a M&A scenario for their client....

BHI would be looking for quick fix acquisitions to maintain mass whether in North America, Russia or elsewhere. BHI will have to invest fast and put up the money now, or run the risk of losing market share rather quickly. They've had over a decade to invest organically, and if management is really pleased with the results of their ROI on organic $$$ invested in monitoring controls, real time surveillance, and telemetry , then more power to them. (I expect Schulumberger to maintain leadership on this platform for quite some time, until GE debottlenecks their new acquisition). So what other options are there for BHI? Would the Fed allow a Weatherford acquisition, or vice versa? Regardless, it will be a huff and puff. Good luck to all!

Re: Halliburton M&A. The Financial Times had an article back in 2009 that summed it up well. --- click here. It's obvious to observers they are looking to test the water in the artificial lift market sector with a small acquisition, - at least for now.

This artificial lift industry sure is getting interesting ... !



Update: May 2012 - click here. If you'd like to share your thoughts, please feel free to logon onto the ESPLIFT.com Artificial Lift community forum and give us your opinion. Registration is free.


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