NEW YORK: General Electric Co. is buying oilfield pump maker Lufkin Industries Inc. for $ 2.98 billion, sharply increasing its presence in the fast-growing market to extract oil and natural gas from shale rock, the conglomerate said.
Lufkin's pumps, also known as artificial lift products, are commonly seen seesawing back and forth on top of energy wells to pull oil and natural gas to the surface.
The Lufkin deal, which the parties expect to close by June, is GE's first major acquisition since the conglomerate sold its remaining stake in NBC Universal two months ago. It is a key part of CEO Jeff Immelt's plan to focus more on growth in the energy-rich shale fields of North Dakota, Texas and elsewhere in the United States.
After the deal closes, GE's Oil & Gas business will be the third-largest manufacturing unit by revenue behind the power and water and aviation units. The Oil & Gas unit has been growing at a breakneck clip, posting a 16 percent jump in revenue from 2011 to 2012.
Immelt said last fall that GE would seek acquisitions in the $ 1 billion to $ 3 billion range. Natural gas development is "the place to play both in terms of the U.S. and the rest of the world," he told analysts at the time.
GE has spent about $11 billion in acquisitions since 2007 to boost its presence in the oil and gas business, which is its fastest-growing and accounts for about 10 percent of its revenue.
"There's certainly a big premium here for Lufkin, but I don't think they overpaid," said Oliver Pursche, president of Gary Goldberg Financial Services in Suffern, New York, which owns GE shares.
"I think you're going to see a significant increase in M&A activity by a lot of similar firms, because that's the only way they're going to grow" in the oil and natural gas industry, he said.
The Lufkin deal is a positive use for GE's $ 125.7 billion cash pile at a time of cheap interest rates, Pursche said.
GE's energy business also makes underground pumps that pull oil and gas to the surface, as well as wellheads, compressors and filters.
"This (Lufkin) deal is really going to round out our portfolio," Daniel Heintzelman, head of GE Oil & Gas, said in an interview. Heintzelman, who joined GE in 1979, is a member of the company's corporate executive council and previously worked with GE's aircraft engine business.
GE expects the oil pump market to grow at 12 percent to 13 percent per year for at least the next decade, said Heintzelman, citing statistics that at least 94 percent of oil wells will need pumps or lifts at least once in their lifetime.
FROM: REUTERS
