Industrial equipment giant General Electric Co. is reportedly engaged in ongoing discussions with major oilfield services provider Baker Hughes Inc. on a possible partnership deal that would help cut costs and enhance competitiveness.
People with knowledge of the talks told the Wall Street Journal that GE wants a merger of its oil-and-gas business with Baker Hughes.
The business newspaper had earlier reported that the industrial equipment maker was looking to buy the oilfield services company.
A GE spokeswoman, however, said that options under consideration in the ongoing discussions do not include a complete takeover.
“We are in discussion with Baker Hughes on potential partnerships,” spokeswoman Deirdre Latour said. “While nothing is concluded, none of these options include an outright purchase.”
Baker Hughes shares surged as high as 19 percent after-hours in New York on Thursday, following the report of the talks by the WSJ, which predicted a deal upward of $20 billion.
More oilfield contractors have been considering the option of partnerships with a view to saving costs. As a result of the downturn, oil exploration companies have requested service providers and gear makers for assistance in improving the efficiency of their activities.
Baker Hughes, one of the world’s largest energy companies, facilitates the activities of energy producers in finding and extracting deposits of oil and gas. It sells and rent tools and equipment to these companies, while also helping to supply labor and erect worker camps in drilling fields.
GE may reportedly consider the option of creating a new publicly-traded company from the merger, if successful. The deal would help reduce the direct involvement of the industrial equipment maker in an under-performing energy industry.
Houston-based Baker Hughes reached a $35 billion deal for a takeover by rival Halliburton Co. in 2014. But that deal was quashed by the Department of Justice earlier this year.
Sources said GE had been approached by the oilfield contractors to buy some Baker Hughes assets worth more than $7 billion in a bid to get the deal approved by regulators.
Since 2007, GE has spent more than $14 billion on acquisitions to expand its oil and gas business. The division has grown to become the jet engine maker’s fourth-largest.
A successful merger would rank among the biggest transactions to date by GE CEO Jeff Immelt. The partnership would also be able to compete more favorably with world’s No. 1 oilfield service provider Schlumberger Ltd., which only recently acquired equipment maker Cameron International.
The two-year downturn has hit the oilfield services and equipment sectors very hard. They have contributed the most to the over 350,000 job cuts across the world, according to Bloomberg. About 100 or more oilfield services company are believed to have gone bankrupt in North America since last year.
The proposed partnership would also enable GE keep apart a business that has been weighing down results in recent years. The oil and gas division experienced a 25 percent slump in sales during the third quarter.