$3.38 Billion is a huge bet, but General Electric is willing to take the gamble on Lufkin Industries, an oilfield services provider. Oil and gas is GE’s fastest growing business contributing about ten percent of its total revenue. To expand further into the energy industry, GE purchased Lufkin to develop a more competitive edge by broadening their drilling capabilities.
Lufkin has advanced artificial lift drilling technology that lifts hydrocarbons in low pressure oil reservoirs and improves the efficiency of naturally flowing wells. Essentially, Lufkin’s artificial lift capabilities will increase output and lower operational costs for GE, who only had the capacity for electric submersible pumps pre-acquisition. These capabilities are worth the multi-billion dollar investment to GE, and will certainly help GE Oil & Gas become a lucrative business.
The recent oil and natural gas boom in North America has proved lucrative for many companies, and GE is expecting the same success. According to Nytimes.com, “exploration in shale, the hardened rock formations behind a surge in energy production, is expected to increase by 10 percent or more a year for up to a decade.” As drilling and fracturing technologies develop, it becomes possible to obtain fossil fuels from reserves previously believed too difficult or expensive to reach. GE also announced their new global research center for oil and gas in development planned to open in Oklahoma City that will concentrate on resources like shale gas.
GE’s well-rounded approach to the energy industry should prove rewarding for the diversified technology giant. Their already comprehensive portfolio will continue to grow with this acquisition leaving them to succeed and dominate another industry.