Why leave the mega-mergers to the oil co’s when the service sector can play too? Baker Hughes International (BHI) plans to combine its Western Geophysical unit with Schlumberger’s Geco-Prakla. But while the major oils cash in on $30 oil, the service sector marriage is more one of inconvenience, with rumors of combined yearly losses for the two players of around $200 million.
MOU
The deal is currently at the Memorandum of Understanding phase pending board and regulatory approvals. The newly formed group will be owned 70% by Schlumberger and 30% by Baker Hughes. Schlumberger will pay some $500 million to BHI to complete the transaction and is expected to injected a further $100 of working capital. Western Geophysical president Gary Jones is to head the new venture which had pro-forma revenue of $1.5 billion for 1999.
50% market share
Western Geco will dominate seismic acquisition and processing with an estimated 50% of the world market. A good fit is claimed for the acquisition business since Western’s strength in land acquisition is matched by both Geco’s offshore position and technology. In processing, the situation is less clear-cut. Omega is a head-on competitor for the recently productized Seismos.
Foster
BHI chairman Joe Foster said "The Western Geco venture is expected to result in improved efficiencies in data processing and acquisition and will have strong R&D funding, an excellent workforce and superior technology. Our customers will have access to an expanded, world-class, multi-client seismic data library.” Baker Hughes plans to use the proceeds from the transaction to reduce debt.
downsizing
Major rationalization is in the offing with a likely scaling-down of fleets and processing capacity. The venture is expected to generate ‘substantial’ cost savings. A filing under anti-trust legislation in underway and the deal is expected to complete before the end of the year.
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