GE expands oil business with $3B Lufkin Industries buy

General Electric Co. will buy the oilfield equipment maker Lufkin Industries, Inc. for about $3 billion, the company announced Monday, further expanding its oilfield equipment portfolio.

The deal reflects GE’s efforts to stake out its share of the market for the increasingly sophisticated equipment needed to produce wells. Lufkin, named for the Texan town where it is headquartered, specializes in artificial lift technology, which helps move oil and gas to the surface in reservoirs with low pressure.

“It will change the way we approach customers because we will have a full range of options to sell customers,” Dan Heintzelman, president and CEO of GE Oil &Gas told the Chronicle, explaining that a well can require different pumping solutions during its life. “This will give us access to more customers and allow us to bring the correct technology for any well solution.”

Artificial lift is used in more than 90 percent of oil-producing wells, and is viewed as one of the critical changes that help producers maximize the well potential, Heintzelman said.

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The acquisition will also give Lufkin technology more access to global markets, Heintzelman said. Lufkin currently earns more than two thirds of its revenue in the North America market, but GE plans to use its global presence and network to expand its share in the artificial lift market worldwide.

In the last three years, GE has focused on expanding its Oil & Gas division, which now includes 37,000 employees worldwide, and expects to develop its own technology solutions for challenging production issues such as drilling in high temperature conditions and in deep waters.

“We’re focused on a lot of organic technology development,” Heintzelman said. “Relative to the challenges, we will invest organically, but that’s not to say that somewhere in the industry that there’s not an inorganic opportunity.”

GE estimated the deal is worth $3.3 billion and plans to pay Lufkin shareholders $88.50 per share in the all-cash deal, a 38 percent premium over Lufkin’s closing price on Friday of $63.93.

The deal is expected to close in the second half of 2013.

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Wells Fargo analysts expressed little surprise over the acquisition, but raised an eyebrow at the price paid by GE.

“GE has long been considered not only one of LUFK’s leading strategic suitors, but also the most likely to prevail if the sale of LUFK came down to a bidding war,” Wells Fargo wrote in a research note on Monday morning. “That being said, we think GE has still conceded strikingly high multiples relative to the risks, especially the company-specific ones.”

GE also announced Monday that it plans to invest in a major wind project in Kansas and will supply the needed turbines.

GE has partnered on the project with Enel Green Power, a global renewable energy company, for further investment in the 250-megawatt Buffalo Dunes Wind Project, which is one of several midwestern wind projects co-owned by the two companies.

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