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Lorenzo Simonelli, Chairman and CEO of Baker Hughes (BGHE), comments during a panel session titled "Global Gas Innovators" on the third day of CERAWeek by IHS Markit at the Hilton Americas-Houston Hotel Wednesday, Mar. 13, 2019 in Houston, TX.
A new flag hangs outside Baker Hughes a GE company's offices in north Houston, Wednesday, July 5, 2017. (Mark Mulligan / Houston Chronicle)
Baker Hughes global headquarters is located at 17015 Aldine Westfield Rorad in far north Houston.
Aerial view of a Baker Hughes manufacturing facility in Avenza, Italy. The company describes the plant as a “center of excellence for the construction of fully tested gas turbine power-generation and compression modules with all equipment and auxiliaries integrated and tailored to customer needs.”
Aerial view of a Baker Hughes manufacturing facility in Avenza, Italy where some industrial equipment is being prepared for shipment in the Marina di Carrara Harbor.
Baker Hughes uses a plant in Italy to make turbines for liquefied natural gas plants.
Houston oil field service company Baker Hughes has pledged to achieve net-zero carbon dioxide emissions for its worldwide operations by 2050. The company has launched LUMEN, a drone to detect methane emissions at oil and gas operations.
Houston oil field service company Baker Hughes has pledged to achieve net-zero carbon dioxide emissions for its worldwide operations by 2050.
Houston oil field service company Baker Hughes has pledged to achieve net-zero carbon dioxide emissions for its worldwide operations by 2050. The company has launched LUMEN, a drone to detect methane emissions at oil and gas operations.
As part of pledge to have net-zero carbon emissions by 2050, Baker Hughes has rolled out “electric frack” turbines that make electricity for oilfield equipment in remote areas using natural gas that would have otherwise been burned off in an industry practice known as “flaring.”
This Baker Hughes office is near Bush Intercontinental Airport. The $23 billion merger of Houston oil field services provider Baker Hughes with the oil and gas division of industrial giant GE closed in early July 2017. The deal created the second largest oil field services company in the world behind Schlumberger and changed the trajectory of one of Houston’s biggest employers.
Neil Saunders, President & CEO of Oilfield Equipment at Baker Hughes, during a Nov. 28, 2018 presentation at the JW Marriott in downtown Houston where he was speaking about the debut of the company's new technology for offshore projects.
Juan Benedetti with London office of Baker Hughes uses a video game controller at a Nov. 28, 2018 event to demonstrate new technology the Houston-based oil field service company will reduce costs for offshore projects.
New Baker Hughes a GE company CEO Lorenzo Simonelli speaks during a meeting at the company's office in north Houston, Wednesday, July 5, 2017. (Mark Mulligan / Houston Chronicle)
Martin Craighead (left), chairman and CEO of Baker Hughes, and Lorenzo Simonelli (right), president and CEO of GE Oil & Gas, discuss their merger deal, Monday, Oct. 31, 2016, in Houston. ( Mark Mulligan / Houston Chronicle )
1970 - Hughes Tool Company put together this giant drill bit for use with its new Combination Shaft Drill 820. The 12-foot diameter bit will be used to drill the access shaft to the intake tunnel in the Lake Mead Tap Project in Nevada.
1969 - Hughes Tool Company's industrial products has manufactured a hard rock bit to drill a 140-inch diameter hole. The bit was trucked from Houston to an Atomic Energy Commission Nevada test site to drill a hole for a nuclear device.
1958 - Some of Hughes Tool Company's 5,000 employees leave the plant in Houston at the close of the day shift.
1939 - Howard Hughes Jr. (center) at the Hughes Tool Company plant in Houston
1913 - Hughes Tool Company started as a small building on Buffalo Bayou near Main Street
1909 - Hughes Tool Company, interior of the first Hughes Plant
Turbines to run liquefied natural gas plants in the Arctic Circle. Lighter and easier-to-assemble equipment to extract oil and natural gas thousands of feet below the ocean’s surface. Drones to detect methane leaks from oil wells and pipelines. Cleaner power to run hydraulic fracturing operations and lower greenhouse emissions.
Some two years after the merger with oil and gas division of General Electric, the Houston oilfield services company Baker Hughes is cutting a different path in the industry, seeking to distinguish itself from its longtime rivals Schlumberger and Halliburton with a renewed focus on cutting-edge technologies, equipment and services.
Baker Hughes exited the hydraulic fracturing business in North America, where it was a distant No. 3 three to its main competitors, two years ago in favor of what it views as newer and more profitable lines of business, such as providing equipment for offshore and liquefied natural gas projects. The strategy appears to have paid off as the company shook off some two years of steep losses that followed the last oil bust and earned a $195 million profit on nearly $23 billion in revenue in 2018.
There are other signs of stabilization. After hitting a low of $19.2 billion during the third quarter of 2016, Baker Hughes’ stock market value climbed to $22.1 billion, surpassing that of its Houston rival Halliburton ($15.3 billion) and second only to Schlumberger ($43.7 billion.)
October 1878 - Thomas Edison founds the Edison Electric Light Company
April 1892 - Renown inventor Thomas Edison founds General Electric
August 1907 - Reuben Baker obtains a patent and forms a company that would later become Baker Oil Tools
December 1908 - Walter Benona Sharp and Howard Hughes Sr. found Sharp-Hughes Tool Company
February 1915 - Sharp-Hughes Tool Company renamed as Hughes Tool Company
April 1986 - Saudi Arabia floods global crude oil markets causing a crude oil price crash
April 1987 - Baker Hughes created by the merger of Baker Oil Tools and Hughes Tool Company
December 1993 - General Electric announces deal to buy Italian oil & gas equipment manufacturer Nuovo Pignone
October 2008 - Discovery of the Eagle Ford Shale kicks off the shale revolution
April 2010 - Baker Hughes closes a $5.5 billion deal to buy hydraulic fracturing company BJ Services
January 2012 - General Electric forms GE Oil & Gas
July 2014 - Saudi Arabia floods global crude oil markets causing a crude oil price crash
January 2017 - Baker Hughes sells 53.3 percent of BJ Services in a $325 million deal
July 2017 - General Electric closes $32 billion deal to buy Baker Hughes
June 2018 - General Electric announces plans to sell off its 62.5 percent stake in Baker Hughes
November 2018 - General Electric enters amended separation agreement to accelerate plans to divest from Baker Hughes
Source: Baker Hughes; Houston Chronicle Research
In many ways, the focus on technology and equipment is a return to Baker Hughes’ roots. Its three predecessor companies — Baker Oil Tools, Hughes Tool Co. and General Electric Co. — were all founded more than a century ago on newer, better technologies that advanced, if not reshaped, their industries.
“This is Baker Hughes’ homecoming,” said Vikas Mittal, a business professor at Rice University. “They went on some detours for the last five or six years but they’ve come back home to where they belong.”
The merger with GE Oil & Gas dramatically changed the fortunes of Baker Hughes, which, as the oil bust came to an end, was as distant number three to Schlumberger and Halliburton, with the likelihood that the distance would only become greater. Baker Hughes was largely hobbled during the energy downturn by its merger agreement with Halliburton, which kept it from taking actions — such as selling off unprofitable businesses — that might have helped it come out of the bust in better shape.
Even after receiving a $3.5 billion breakup fee from Halliburton after the merger was scrapped in May 2016, Baker Hughes still sustained steep losses. The merger with GE Oil & Gas put Baker Hughes on par with Halliburton, the long time number two in the industry, in terms of revenue, employment and stock market value.
General Electric holds a majority stake in Baker Hughes, but has reduced its stake significantly from the 62.5 percent it controlled after the merger. GE, which now holds just over 50 percent of Baker Hughes, plans to divest itself of all its shares over time, although the exact time frame remains unclear.
Thomas Edison founded the company that would become General Electric in October 1878 as the adoption of his invention of the electric light bulb began to accelerate and the nation electrified. With decades in the electricity generation and industrial equipment business, General Electric created an oil and gas division after buying Italian oil and gas equipment manufacturer Nuovo Pignone in December 1993.
Nearly three decades after the founding of GE, Reuben Baker received an August 1907 patent for a drilling accessory known as a casing shoe that allowed him to form a company in California that would later become Baker Oil Tools. Howard Hughes Sr. patented a drill bit in 1908 that allowed him and Walter Benona Sharp to found the Sharp-Hughes Tool Co. After Sharp died in 1912, Hughes bought his share of the company and renamed it the Hughes Tool Co., which specialized in drill bits.
The Baker and Hughes companies grew and prospered for decades until to oil bust of the mid-1980s. They merged merged in April 1987 to form Baker Hughes.
“Baker Hughes held a lot of intellectual capital — patents, engineers and PhDs who were really focused on making a lot of high-quality products,” Mittal said. “It was able to command high prices because it made products that were well-liked and well-used by the industry.”
Baker Hughes spent the 1990s and 2000s buying smaller oilfield services companies. In a $5.5 billion deal that closed in April 2010, Baker Hughes bought BJ Services, a company specializing in hydraulic fracturing, cementing and other types of underground work known as pressure pumping, as Baker Hughes tried to capitalize on the shale boom.
Crude oil prices were rising, reaching well above $100 per barrel at the end of the shale boom in mid-2014. That boom turned to bust as a glut of oil overwhelmed global markets and prices plunged to a low of $26 a barrel in February 2016.
In late 2014, Halliburton announced a merger agreement with Baker Hughes. The deal was called off in May 2016 when it could not overcome anti-trust concerns raised by the Department of Justice.
GE became familiar with Baker Hughes when Halliburton was considering selling off some Baker Hughes’ businesses to satisfy regulators and GE Oil & Gas appeared a likely buyer. After the merger fell apart, GE considered joint ventures with Baker Hughes, but ultimately struck on the merger, announced in October 2016.
In a January 2017, Baker Hughes got out hydraulic fracturing and pressure pumping in North America by selling 53.3 percent of BJ Services to private equity investors. The $32 billion merger between Baker Hughes and GE Oil & Gas closed five months later.
GE Oil & Gas CEO Lorenzo Simonelli became CEO of the merged company. One of Simonelli’s key goals was to soften the boom and bust cycle of the oil industry by balancing the company’s short-term equipment and service contracts in the oil patch with long-term contracts for the LNG and offshore industries.
“They’re definitely back on their feet,” said James West, an oilfield services company analyst with the investment research firm Evercore ISI. “They have been aggressive in regaining market share around the world and they have been aggressively pursuing additional share in markets that they had traditionally under served. Their commercial intensity had picked up to where it was before the merger.”
One area Baker Hughes has aggressively pursued market share is the burgeoning LNG industry. Using technology originally developed by General Electric for jets engines, the merged company rolled out a series of turbines that generate power for LNG plants, which require large amounts of electricity and mechanical power. Over the past year, Baker Hughes has landed contracts to supply high-horsepower and cleaner-burning gas turbines to LNG plants under development in Texas, the Russian Arctic Circle and other locations around the world.
Looking to grow its share in offshore oil and gas projects, which are picking up after being overshadowed by shale in recent years, the company launched its Subsea Connect line of products late last year. Touted as lighter, modular equipment, Subsea Connect products can be more easily installed and deployed on the sea floor thousands of feet below the surface of the ocean. Able to withstand the high pressures and temperatures deepwater production, Baker Hughes estimates that its technology has the potential to unlock an additional 16 billion barrels of oil reserves globally.
Baker Hughes also is seeking to profit from growing concerns about climate change, which are increasing pressure on oil and gas companies to do more to reduce greenhouse gas emissions from their operations. In addition to drones that detect gas leaks, the company has debuted “electric frack” technology that uses excess natural gas from a well to produce power at remote drilling and production sites — reducing the need to burn off that natural gas in a practice known as flaring.
“Climate change is one of the most significant challenges in the world,” Simonelli said in a letter to shareholders. “It requires meaningful action by all of us to mitigate adverse impacts on the environment and society.”
The original merger agreement between Baker Hughes and GE Oil & Gas included a clause that prevented General Electric from selling its majority stake in the combined company until July 2019. But in the face of multibillion-dollar losses, General Electric decided that it needed to divest more quickly.
After reaching an agreement with the Baker Hughes board of directors, the industrial conglomerate announced plans in July 2018 to sell its stake in Baker Hughes over a two- or three-year time frame. In November, General Electric reduced its stake to 50.4 percent, generating $4.4 billion from the sale.
Under an agreement, General Electric was able to start selling its majority stake in Baker Hughes in May. The date has come and gone without General Electric selling stock. Analysts say the company is waiting for a higher stock price.
Even without an exact date planned, Baker Hughes has already started preparing for life after General Electric. The company has started listing separation costs in its financial filings alongside the ongoing integration costs of the 2017 merger. So far this year, the company has reported paying $74 million in combined “integration and separation” costs.
During recent earnings calls, Baker Hughes executives have stressed that the little is expected to change in the company’s day-to-day operations if and when General Electric divests its holdings.
“We’ve always run (Baker Hughes) as a strong, independent public company, and we’ll continue to do that,” Simonelli said in a call with investors earlier this year.
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