Baker Hughes Focuses On Reservoir Productivity With Perfomix Acquisition

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Baker Hughes (NYSE:BHI), one of the world’s largest oilfield services companies, announced that it would be acquiring Perfomix, an oilfield software technology company that provides tools to enhance the performance of oil and gas reservoirs. Although the terms of the acquisition were not disclosed, we believe that it could be beneficial to Baker Hughes as it would allow it to better cater to oil and gas companies, who have been increasingly focusing on maximizing well productivity and rates of return. Below is an overview of the deal and why we think it makes sense for Baker Hughes.

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Oil Companies Are Looking To Maximize Initial Flow Rates and Ultimate Recovery From Wells

Oil and gas companies have been spending less money on seeking out new discoveries, instead focusing on improving the productivity of their wells, in order to maximize their returns on invested capital. For instance, in the case of shale gas reservoirs, companies are only able to extract about 10% to 15% of the total hydrocarbon reserves, and this means that even small incremental gains in the recovery rate could bode well for cash flows and returns on investment. [1] This trend towards improving ROIs is reflected in the capital expenditures of oil companies too. According to Barclays’ Global 2014 E&P Spending Outlook report, a majority of oil companies have indicated that their exploration spending was likely to remain at current levels or even decrease slightly this year, while production-related spending is expected to rise.

Oilfield services companies have been responding to this need by developing new technologies that help to boost the initial production rates and ultimate recovery rates of reservoirs. For example, companies have been increasingly fitting their drilling rigs and other equipment with digital technologies that gather more reservoir data in order to enable decisions on locating the “sweet spots” of a reservoir. ((Baker Hughes acquires Houston reservoir-software firm, Fuel Fix, April 2014)) One of Baker Hughes’ biggest competitors, Halliburton, also recently introduced software that locates the most productive spots of shale reservoirs. Halliburton claims that this program has, in initial tests, helped to boost oil production by about 20% in some locations in the United States. [2]

Perfomix Will Be Integrated Into Baker Hughes’ Remote Operations Services Group

Perfomix software allows oil companies to collect and interpret data to help them perform drilling, pressure pumping, completions and production operations. Perfomix would operate as a wholly-owned subsidiary of Baker Hughes and would be integrated into the company’s Remote Operations Services unit. Specifically, the acquisition would expand the service capabilities of Baker Hughes’ BEACON product line, which  provides real-time remote collaboration and support for oil companies by interpreting oilfield data to increase efficiency and maximize recoveries. [3] Baker Hughes currently has a network of around 25 remote support centers worldwide. ((ref:2))

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Notes:
  1. New tech could make production spending more effective, expert says, Fuel Fix, March 2014 []
  2. ref:2 []
  3. Remote Operations Services, Baker Hughes []