General Electric Co is to buy a unit of British energy services firm John Wood Group for about $2.8 billion, the latest move by the largest US conglomerate to boost its presence in oil services.
GE's acquisition of John Wood's Well Support division raised hopes of more deals in the oilfield services sector, where GE has recently been an active buyer of assets.
GE, which is buying the unit through its oil and gas business, in December agreed to buy Britain's oil drilling pipemaker Wellstream Holdings Plc for $1.3 billion.
That followed a 2008 deal to buy pressure control equipment company Hydril for $1.1 billion and a 2007 deal to buy privately held oil and gas field equipment maker Vetco Gray.
The US company has said it could spend up to $30 billion on takeovers in the coming years as CEO Jeff Immelt renews GE's focus on heavy manufacturing after reaching a deal to sell its media unit and scaling back the GE Capital finance arm.
John Wood said it intends to return cash of no less than $1.7 billion to shareholders.
GE said the John Wood unit acquisition would allow it to tap fast growing demand for enhanced oil recovery from mature oil fields.
"Five years ago, drilling and production in GE did not exist," John Krenicki, CEO of GE Energy said. "Over the last five years we've built it up to be an industry leader."
He said that GE expects the deal to be 'slightly accretive' in 2011 assuming it closes by the end of the second quarter.
Krenicki doesn't anticipate more deals in the medium term in the specific area of drilling and production, but said there could be deals elsewhere.
"Specific to this space - drilling and production - we think we have got what we needed for the medium term," Krenicki said. "But the rest of the energy portfolio has capability to do more and we'll look for things that make sense."
Wood Group's Well Support division is comprised of three business platforms - electric submersible pumps (ESPs), pressure control and logging services.
GE said that deployment of electric submersible pumps are one of the most effective methods of enhancing production.
"If you look at world oil production today, about two-thirds comes from 300 giant wells that are depleting about six percent a year," said Krenicki. "Of those giant wells, only about one third of the oil has been extracted - for lots of reasons - cost, technology, difficulty. And world oil demand is to grow about 20 million barrels per day over the next decade."
"We know that these (electric submersible pumps) are the key to unlock this puzzle," Krenicki said.
John Wood said earlier in February it was looking into the possible sale of the Well Support unit.
John Wood Chief Executive Allister Langlands said the company would use some of the funds to pay for its purchase of oil production services company PSN, which it bought for $955 million in December, and added that the company will also look to make more acquisitions.
"We'd like to expand our engineering business in Brazil, we'd like to grow our brownfield support business in Canada so those will be two areas that we continue to look at," he said, adding that no deal was imminent.
GE said that Wood Group's board intends to unanimously recommend the deal to its shareholders. It is expected to close later in 2011, GE said.