General Electric (GE) has been a surprise winner in the on-going U.S. energy revolution and has currently grown into one of the major equipment suppliers for oil and gas companies. In the oil and gas conference held on September 10, the management discussed the future prospects of the oil and gas industry sector. The company has also undertaken quite a few inorganic growth measures which have propelled the growth of the oil and gas sector in a greater manner. Let's take a sneak peek into the oil and gas sector of the industry segment, and assess what innovative steps GE is taking to bring brighter days for this sector.
Acquisition spree has fueled growth
While GE has seen some organic growth in this line of business, acquisitions have been its key driver. Between 2010 and 2013, GE has spent over $11 billion on acquisitions linked to this industrial segment. The most notable of these was the deal to acquire Lufkin (LUFK) in 2013, for which the company paid a premium of 40%. By acquiring Lufkin, GE was able to acquire a specialized equipment provider for oil and gas wells, specifically those involved with artificial lift technology.
Soon after the acquisition, the oil and gas segment registered robust growth. Revenue for the second quarter of 2014 rose 20%, while operating profits increased by 25%. Furthermore, equipment servicing revenue has become the focus area of growth, up 11% in the second quarter.
Innovative solutions to enhance growth
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In a recent article from the Financial Times, GE's Oil and Gas division head Lorenzo Simonelli stated that the company had started to become a major player in the oil and gas industry, taking market share from the "big four" in the industry- Schlumberger (SLB), Halliburton (HAL), Weatherford (WFT) and Baker Hughes (BHI). Although it still remains smaller than the big four it does have a promising future ahead.
In fact, GE's intelligent pipeline concept is one of the greatest hi-tech solutions formulated by the R&D section of the company. This concept aids in using sensors in oil pipes that allows for better monitoring of flow and pressure within the pipeline, something that was pretty difficult to monitor in standard pipelines. And as this concept brings more reliability and security to oil pipelines, GE has even bagged customers opting for the "intelligent pipeline." Columbia Pipeline Group has signed up to be its first customer for implementing this technology across its 15,000 mile pipeline network in its efforts to bring around modernization.
GE management is hopeful that very soon this technology will turn into an industry standard, and GE's oil and gas division head has opined, "The industry is becoming more regulated, more complex and more technically challenging. It is looking for improved capital efficiency, and the biggest inefficiency of all is unplanned downtime."
In the conference held yesterday, the management stated, "Our portfolio now goes beyond equipment. Through our advanced technology, including hardware and software solutions and services, we help our customers manage their operations in a cost-efficient manner driving capital efficiency." They further added that GE expects subsea industry to improve globally 9% per year and liquefied natural gas industry to increase 8% per year by 2017.
Future initiatives
GE spoke of the upcoming initiatives in this segment during the conference to illustrate the breadth of GE's oil and gas capabilities to meet the
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