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“Lower for longer is the new normal”

Baker Hughes, a GE Company head Lorenzo Simonelli says newly merged firm is already adapting to the industry’s leaner environment

Expect to see more consolidation between oil and gas companies offering services at different stages of the process, says Lorenzo Simonelli.

He now presides over the merged Baker Hughes, a GE Company—or BHGE, as it is listed on the New York Stock Exchange.

At a meeting on the sidelines of the World Petroleum Congress on 10 July, he pointed to the underlying logic of the merger. BHGE is now the world's largest manufacturer of oilfield equipment with its second-biggest oilfield-services provider. At a time when efficiency and cutting cost are paramount, it's the kind of scale he thinks will yield growth.

"We are starting to see some consolidation in drilling, and with the big players in Norway," Simonelli said. He cited Halliburton's failed attempt to merge with Baker Hughes before GE succeeded, last October, as another example of the trend.

Shortly afterwards, Opec agreed to start cutting production to support prices, leading many in the industry to hope the market would go on a sustained rally. But Simonelli believes "lower for longer is the new normal," and oil and gas companies need to make themselves permanently leaner as a result.

"We've heard people in the industry say that when it's good, we spend like drunken sailors, and when it's bad, we cut everything, and we go through this vicious cycle again and again. But some things have changed. Unconventionals weren't there before, and new technology has meant productivity is achievable if you are consistent and sustainable in your efforts. The industry wants to be more efficient, and not go back to those old ways."

The subsea contract for the Eni floating liquefied natural gas project in Mozambique, awarded to BHGE in June, was an outcome of the company's broad offering, Simonelli said in Istanbul. BHGE was able to match information from the subsea part of the project with the floating LNG, knowing what is required for both—a process he described as "full stream".

He thinks deep-water and offshore drilling will make a comeback, despite a market that seems fixated by onshore oil and gas. As for LNG, Simonelli expects global market growth of 3-4% a year.

Data analytics is another focal point for BHGE—the company offers an array of software tools to assess maintenance and performance in real time. Other prospects may also emerge. "We are not averse to looking at new opportunities, filling in the gaps," Simonelli says. Another potential area is 3D printing for drilling equipment—a nascent and complex technology when it comes to drilling through rock, but one which points to savings thanks to lighter, more durable equipment.

BHGE's 70,000 employees, spread across 120 countries, are spending the first two weeks of July undergoing integration meetings.

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