NOV Inks Groundbreaking Collaboration With GE

Analysts say the two working together is bound to lower costs -- and thus jumpstart some new projects -- something the distressed oil and gas industry really needs.
By Claire Poole ,

Ailing oil services provider National Oilwell Varco (NOV) - Get Report had a bit of good news on Thursday, announcing a collaboration with GE Oil & Gas, a unit of General Electric (GE) - Get Report , to provide products and services to floating production storage and offloading vessels -- known in the trade as FPSOs.

So what's so great about that? Well, anything announced with a blue chip company like GE is a positive thing. But beyond that, analysts say the two working together on this piece of the business is bound to lower costs -- and thus jumpstart some new projects -- something the distressed oil and gas industry really needs.

FPSOs aren't any flash in the pan. The market has grown consistently over the years and is expected to reach $43.39 billion by 2021, according to Transparency Market International.

The reason NOV and GE came together was complementary operations. NOV engineers and makes systems and machinery for FPSO vessels, boasting that it has installed and commissioned equipment on hundreds of them in dozens of shipyards for the oil and gas drilling industry. GE engineers and makes products for power generation and gas compression projects along with subsea trees, manifold and connection systems and power and processing equipment.

The two are hoping that bringing those two skill sets together will help them provide systems that will cut the risk of construction delays and cost overruns for deepwater oil and gas customers and have digital capabilities that can optimize performance and provide predictive analytics through the life of the vessels.

"We can materially improve deepwater production economics by industrializing the supply chain and standardizing complex interfaces between our complementary topside equipment," NOV CEO Clay Williams said in a statement. "For the past year we have quietly explored this new and better way to make floating production vessels and are excited about how this collaboration will change the industry and improve the economics of deepwater production development."

GE said it may involve other GE businesses in its collaboration with NOV. "With this agreement, we are bringing together capabilities and expertise from GE Oil & Gas and NOV to better serve our customers and overcome oil and gas offshore industry challenges," said Lorenzo Simonelli, CEO and president of GE Oil & Gas.

Bill Herbert, oil services analyst at Piper Jaffray unit Simmons & Co. International, said the collaboration is yet another example of the "leading lights" of capital equipment and oil service pursuing the benefits of breadth, scale and integration. He noted the combinations of Schlumberger (SLB) - Get Report and Cameron International, which closed in April, and FMC Technologies (FTI) - Get Report and Technip, which was announced in May, as examples.

Seaport Global Securities analyst Mark Brown said the alliance between the two companies should bring down the "break-even threshold" of offshore development, meaning lower costs that could spur new projects. "Any news that increases the number of economic offshore projects should help offshore drillers, OSV [offshore support vessel] companies and diversified service providers," he said. "The move is also likely to force competitors, such as OneSubsea and FTI, to step up their games, which should further reduce overall project costs."

NOV and GE Oil & Gas said they expect to complete joint engineering efforts and commence offering solutions to the oil and gas industry by early 2017. It can't come soon enough for some companies suffering from the downturn.

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