Oil Services Strikes First Big Deal Since 2008

The faltering economy has been bad news for the oil and gas business. Gas prices have fallen off more than 75% from their peaks last summer. But oil and gas producers have been upping the number of oil and gas rigs recently in the hopes that an economic recovery will boost energy demand.

In the run-up to the recovery, Baker Hughes (BHI: 34.45, -3.64, -9.55%) , the biggest producer of drilling hardware, struck a deal to buy oil and gas gear maker BJ Services (BJS: 16.06, +0.63, +4.08%) for $5.5 billion. BJ Services specializes in hardware to extract oil and gas from shale, especially offshore. The acquisition will beef up the company’s unconventional natural gas and deepwater businesses.

Baker Hughes bought BJ Services at a 16.3% premium to its August 28 stock price. The company’s chief executive Chad Deaton said in a statement that he hopes the acquisition will boost earnings in 2011, saving the company roughly $75 billion in 2010 and $150 million in 2011. Deaton said the deal will “better position us to drive international growth” and add “pressure pumping into our product offering,” a part of the business that now makes up less than 1% of Baker Hughes’ revenues. The BJ Services deals should boost pressure pumping (which involves pumping fluid down a well to increase the well’s production) to roughly 20% of Baker Hughes’ business.

Some analysts say natural gas could get a boost this winter because it is used to heat millions of U.S. homes. It is also the energy source for manufacturers, which are ramping up production in hope of a sustained economic recovery.

source: smartmoney