First oil

In the course of 150-plus years, the oil and gas industry has emerged in its present form through the rise, and eventual assimilation of thousands of operators, service companies and equipment manufacturers. In many cases, an inkling of the evolution is evident in the names—ExxonMobil, ConocoPhillips and Baker Hughes. In other cases, the assimilation is complete, requiring Googlogical excavations to discern the evolution of companies, such as BP, Schlumberger or Cameron.

Industry growth has been both organic (internal) and inorganic (external, through acquisition). It is instructive to follow the growth of what is now a major player in the oil and gas industry’s manufacturing sector: GE Oil and Gas. General Electric is, of course, a household name as a conglomerate that traces its origin to Thomas Edison’s invention of the electric light bulb. After decades of growth in electrical equipment, consumer appliances, jet engines and, even, medical imaging and financial services, the conglomerate began a concerted foray into the oil and gas manufacturing sector 20 years ago, through the acquisition of the Italian turbomachinery manufacturer, Nuovo Pignone. Since then, GE’s notable acquisitions have included well-known oilfield manufacturers, such as Hydril and VetcoGray.

Now GE Oil & Gas appears to have made a strategic decision to be a leader in the artificial lift segment. In April 2011, GE completed the acquisition of John Wood Group’s Well Support division, which comprised ESP, pressure control and production logging platforms, for nearly $1 billion. In April 2013, GE announced the acquisition of Lufkin Industries, one of the venerable oil patch companies, founded in 1902, for nearly $3 billion. It is safe to say that whenever GE enters a new market, it has no intention of being a low-rung player. In the oil and gas space, GE has spent about $11 billion in acquisitions since 2007. Oil and gas is GE’s fastest-growing business and accounted for about 10% of the corporation’s total revenue in 2012.

An inorganic acquisition is a double-edged sword. Usually, the acquiring company, the “big fish,” can provide more resources—financial strength, manpower, R&D, marketing reach and supply chain management—to the “little fish.” On the other hand, if the top-tier staff at the acquired company is more comfortable at doing business in a relatively “mom and pop” fashion, one hears anecdotal evidence of a talent exodus. It is certainly true that an employee needs a different skill set at a small business, as compared to a major corporation. At the small firm, product line managers are used to taking bold (and possibly risky) decisions on their own. In a corporate setting, the management style is consensus driven by so-called team players. At GE Oil & Gas, the bottom line is that the company has accomplished both organic and inorganic growth to post a 16% growth rate from 2011 to 2012.

From an industry perspective, a talent exodus is not necessarily a bad thing. The ranks of exploration, drilling and production managers at independent and national oil companies are full of talented individuals, who have gained experience while working for the majors. Companies, such as Anadarko Petroleum and Noble Energy, have discovered major fields in the deepwater Gulf of Mexico, as well as far-off locations, such as Ghana, Mozambique and Cyprus. A relative minnow, Cobalt International, was formed by former Unocal executives. Cobalt has discovered one major field in the deepwater Gulf of Mexico and another one in partnership with Anadarko. All such successful independents are vulnerable to a cash-rich major that is pressed to achieve growth, even if it is inorganic. If that happens, then the stage is set for the next generation of intrepid independents.