Baker hughes general electric is up over 30% since the february low – is ge getting the message – baker hughes, a ge company (nyse bhge) seeking alpha n game

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While this is going to be a largely bullish article on BHGE, I must say that it pains me that Baker is sitting out the frac boom in North America. For those who are unaware, Baker spun off its frac capability, about 2 million HHP, into a newly reformed BJ Services as part of the Halliburton (NYSE: HAL) deal that fell through. Through its remaining stake in BJ, it receives a share of profits, but that’s not the same thing as directly providing services. It was only finalized a few months before the GE-BHI merger, so the intrepid crew at the helm of GE signed off on this one too. One wonders if they ever talked to anyone in the oil patch about this absurdity.

I have hoped in vain for some sign that BHGE’s management is going to rectify this travesty. So far, none has been given. I am sure fiduciary issues prevent action to this point, but the potential is so great, I would hope the guys in the Italian suits would be burning the midnight oil to figure this out. This gripe in no way detracts from the thesis that BHGE is an emerging oilfield colossus with plenty of room to run. A few key awards that should resonate with GE

The JV with McDermott was announced shortly after this award from BP. It jazzed me up about the potential for Baker to propel forward. What resonated with me was the huge inter-service line cross-selling opportunity it presents once the FID is in place later this year.

This is a deepwater gas discovery that will be produced through subsea wells, to umbilicals that will feed into a subsea pipeline. Onshore will be an LNG plant. Think mega-project. Think billions of dollars of infrastructure cost/revenue for these companies.

The Rowan Gorilla, built to work in the North Sea environment, was contracted by Baker to service as the workhorse drilling platform. The first well will be in the Maria field, and starts out as a side track from an older existing well. This enables the reuse of the large casing sections of the well, while the drill-bit is sent in search of a trapped reservoir.

Gorgon is one of Chevron’s most capital-intensive projects, with estimates for the total cost now topping $50 billion USD and still running. The award to Baker of the 13 subsea trees and other subsea equipment, including manifolds, wellheads and production controlled systems, that will be used to develop the next phase of this resource is nothing short of amazing to me. If you had asked me, I would have said SLB had an absolute lock on this work. This award will be worth at least a couple of hundred million dollars to Baker.

This is a total project management partnership between the two companies. Baker will supply essentially all the materials used in the scope of drilling 14 new wells in fields covered by the agreement, which will include both shelf and deepwater projects.

I can’t think of a single company that has garnered more ink that GE in recent times, most of it bad. This is probably an outcome of one of the largest industrial giants of the last century falling on hard times in seemingly almost every business in which it participates. You’ve read all those if you’re reading this article.

We get dribs and drabs, like the announcement the other day that GE would form a merger with Wabtec (NYSE: WAB) by contributing assets from its Transportation division. In exchange, it got +/-$3 billion cash and 51% of the merged entity. GE rallied about 30 cents per share on this news. One SA writer loved it. Another one, though, was less than impressed by this move. Both articles read well. I’ll let you read through and make your own mind up about the merits of this move.

The next day Flannery was speaking at an industry conference and managed to undo all the good work done the previous day. The stock tanked. But there is one thing he did say that caused us, at the Daily Drilling Report, to prick up our ears:

And on the Baker-Hughes side, I’d say, we like the way that’s unfolding. The team is executing well, focused on growing cash, focused on growing margins, getting the synergies. The customers have reacted well to the merger and the integrated offering, and there is a little bit of tailwind right now in terms of [indiscernible] market. But even without that, we see good strong robust earnings growth here over the next couple of years.

Wow, what a change from a year ago when he called BHGE a "non-core" asset! It would certainly appear that he has been taking note of the successes Baker has had going toe-to-toe against SLB so far. To be honest, he’d already backed off the "non-core" thing a good bit last winter when he said that nothing hasty (I’m paraphrasing here) would be done in regard to this asset. Taking note of the standstill agreement that Baker secured as part of the deal, that runs into mid-2019.

So now we have pretty strong confidence that whatever form GE takes going forward, Baker is likely to be a part of it. Not a guarantee, mind you, but confidence that in a world that makes any sense at all, GE will retains its share of Baker. Now I will tell you why this must happen for both companies. Why Baker and GE are such an awesome fit

There is no industry more ripe for digital AI and roboticization than the oilfield. Particularly, the deepwater, subsea oilfield. If you take a close look at the picture below, you can see a wide-ranging subsea production system that cries out for AI architecture to run it. Some of this architecture exists, but the field is still in its infancy.

The oilfield as it exists today is still heavily a hands-on (human hands) operation. Little by little, mostly in the areas of computer imaging, AI has been creeping into the day-to-day work scope for the past 20 years. Robotics has lagged behind in most places, with the possible exception of drilling rigs.

Baker has picked up the gauntlet thrown last summer. It has responded with win after win in the arena it was meant to eventually dominate. It is too early to call it dominant, but the recent won/loss record is impressive. It has become my firm belief that Baker is now a core asset within the GE fold, and that should alleviate any residual concerns about what happens in 2019.

I am adding to my position in Baker on any weakness below $35.00, and am watching for an entry point for GE. The one big risk for both would be a significant decline in oil price from present levels. Some are predicting that, and I am inclined to agree.

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