GE steps up oil and gas game with services provisions
As oil and gas companies have stepped up their spending on major oil and gas projects in recent years, GE, one of the world's largest conglomerates, has carved out an increasingly prominent role providing the equipment and services for some of the industry's most ambitious ventures
GE Oil & Gas booked revenues of $15.2 billion in 2012, as it prepares for its first year as a standalone business. The business has grown rapidly in the past 10 years, boosted by in-house technology development and around 30 acquisitions of specialist technology and engineering companies. It now competes on a scale with sector heavyweights such as Baker Hughes, National Oilwell Varco and FMC Technologies.
"We are looking across the sector at all forms of upstream all the way down to midstream and downstream and even into demand generation," GE Oil & Gas' chief executive Dan Heintzelman told Petroleum Economist in an interview at the company's annual meeting in Florence, Italy.
While the firm's cash reserves have allowed GE Oil & Gas to expand its business, but so too, Heintzelman says, has been its ability to tap the technological expertise across GE's businesses. "The global research centres have been a hub... They see what everyone is doing and the problems we are trying to solve and when we go in and talk about the kind of challenges we're facing or trying to solve they will frequently come up with ideas on how we can apply a technology that was developed in one part of GE but have use in another."
This has yielded some surprising breakthroughs. The company, for instance, found that by cranking up the power on X-ray imaging technology developed in GE's healthcare business it could use essentially the same technology to inspect the integrity of oil and gas pipelines and other industrial installations. "Who would ever have believed healthcare imaging technologies that can be adapted to the industrial setting," said Heintzelman.
GE Oil & Gas is focused on three of the industry's fastest growing segments: unconventional oil and gas, offshore development and liquefied natural gas (LNG) projects. The company is likely to continue acquiring firms that provide specialised products and services to these areas. It also expects to double its new technology budget over the next three years. However, GE Oil & Gas declined to give a figure.
North American unconventional oil and gas development has provided strong growth for the company, Heintzelman said. Its $2.8bn takeover of John Wood Group in 2011 expanded the products it offers producers.
But the company also sees opportunities beyond the drilling boom. A glut of natural gas supplies in North America has caused the industry to start looking for new sources of demand, "On the demand side, unconventionals in North America are affording opportunities for a lot of new things," Heintzelman said. The company has heralded the benefits of low natural gas for US manufacturing. But it is also spreading its bets.
GE is supplying gas turbines for the first two trains at Cheniere Energy's Sabine Pass LNG export plant, the first such export project approved by US regulators. It has also developed a compressed natural gas (CNG) product for the transport sector called "CNG In A Box", an all-in-one gas processing and fuelling station kit, to take advantage of rising demand for natural gas for vehicles.
The company is also heavily invested in the offshore sector - where it is focused on the North Sea, Brazil and West Africa. Major contracts wins in Brazil and Angola, have boosted the business in recent months. In Brazil, the company said on 15 January that it had won a $500m deal to supply state-owned Petrobras with gas turbines and compressor equipment for four floating production storage and offloading units that will be used to develop pre-salt fields. In Angola, GE has teamed up with local investment company GLS Holding to invest at least $175m developing a subsea equipment manufacturing facility in the county.
The company's LNG business will be closely linked to the fortunes of a series of multi-billion dollar projects being developed in Australia, where around $200bn is being invested building LNG export capacity. "Australia is huge for us," Heintzelman said.
The company's other major initiative is to help bring the big data revolution to the oil and gas business, through what it calls the industrial internet. Equipment at oil and gas installations generate vast troves of potentially valuable data. GE reckons better use of that data in managing maintenance and operations of production facilities, transport infrastructure, refineries and other areas could create $90bn of value for the industry.
The challenge for companies is making sense of the immense amounts of data available and using it to help predict the performance of critical equipment and make better operational and maintenance decisions, Brian Palmer, the head GE's measurement and control solutions unit, told Petroleum Economist.
The industry is increasingly turning to advanced information technology to help do just that. "There is a recognition that [companies] need to be able to use this technology to get better," Palmer said.
Big data, Palmer is keen to point out, will mean different things to different people. For geoscientists it will mean using large amounts seismic data to generate more accurate pictures of oil and gas reservoir and data gathered from drilling to better predict how the reservoirs will develop. For a pipeline operator, though, it will mean improving maintenance and monitoring of equipment to prevent and better respond to leaks.
GE Oil & Gas has benefited from changes within the parent company since the financial crisis. Through much of the 2000s the company, traditionally known for its manufacturing prowess, grew increasingly reliant on GE Capital, its financial services arm. But the financial crisis decimated that business, and threatened to take GE, one of the US' largest companies, down with it. Jeffrey Immelt, GE's chief executive, responded to the crisis by shifting the company's focus from financial engineering back to developing and manufacturing industrial equipment.
That shift has coincided with an unprecedented rise in spending from oil and gas companies on ever larger and more technologically complex projects aimed at meeting soaring energy demand from emerging markets. Industry spending on exploration and production alone topped $1 trillion in 2012 and, according to a GlobalData forecast, will rise to more than $1.2 trillion in 2013.