The U.S. conglomerate General Electric (GE, Financial) has already mentioned in 2014 that it wants to build its industry segment to such a level that it alone constitutes around three-fourths of its total revenue in the pursuant years. Keeping such a motive in mind, it had announced the acquisition of Alstom that saw several controversies as well. Recently, just a few days back while walking on the path of making the industry segment sound and firm, GE has announced that it’s entering into a joint venture along with McDermott International (MDR, Financial) to set up a consulting independent company named “IO Oil & Gas Consulting” to promote consulting in offshore field developments. Let’s peek in to find out what are the highlights on this promising venture of GE.
What are the companies’ thoughts
President & CEO of GE Oil and Gas Lorenzo Simonelli stated, “GE is proud to support io oil & gas consulting. We feel the venture is a natural extension of our mission to help customers solve the world's toughest energy challenges. As a world leader in advanced technologies and services within the oil and gas industry, GE will lend its domain expertise in subsea production systems that will see the new venture devise technically advanced and robust solutions, especially in new deepwater developments.” In fact, GE has been making several acquistions in the near past to increase its sub-sea offerings and a joint venture with McDermott which is the leader in sub-sea engineering and construction is something very promising for General Electric’s future plans in the oil and gas sector.
While speaking on the JV, McDermott’s CEO David Dickson said, “IO has the right end-to-end DNA and brings a new style of free thinking that we expect will drive change in how projects are brought to market. Focused on its clients' priorities, io offers unique value through broad and comprehensive field development expertise. As a leading offshore engineering and construction contractor, McDermott is proud to support io through its depth of technical knowledge, experience and access to the right knowledge for engineering, procurement, construction and installation services, and specialist construction equipment…”
The prerogative of the new independent entity shows immense clarity
Since the oil and gas industry is a vital component in the global energy mix, the increasing complexity of offshore field developments and the current declining trend of oil prices is challenging traditional ways of working. Both the companies are confident that, as a combined force, they could deliver more efficient and customized solutions to offshore developments around the world.
The new independent entity, io is being led by Dan Jackson, and he stated soon after the launch – “The launch of io represents a significant development that will challenge the way our industry operates. IO combines industry expertise and powerful thinking to deliver greater certainty of costs and schedule to offshore field developments. The heritage and depth of experience from these two great parents allows the best talent in the market to come together and offer something new to operators during current challenging market conditions.”
Though GE has a market cap of about $240 billion, McDermott has a market cap of around $550 million, much lower than that of the former. But the combined strength of the separate and independent firm could aid GE to build its sub-sea technology stronger and McDermott might get a hand to much larger projects amid falling crude oil prices.
The new entity’s scope would range through portfolio evaluation, exploration and planning support, appraisal and feasibility, conceptual engineering and aims to deliver greater certainty into the design and planning of the offshore oil and gas fields.
Last word
GE has always taken inorganic growth mode to progress in its business lines and the JV does leave some scope of converting McDermott into a soft takeover target in the later years. However, as IO is an independent entity such thoughts are being ruled out as of now. As GE progresses in the consulting business for oil and gas, let’s stay tuned and keep an eye on later developments which enhance its position in the consultancy market, where unlike others IO would consider the full field as one system with the technical insight to develop every aspect of the front-end solution.
