A new hydraulic fracturing and cementing service company, BJ Services, will be headquartered in Tomball if an agreement between Baker Hughes and two investment firms is approved.
Baker Hughes announced an agreement on Nov. 29 with CSL Capital Management and West Street Energy Partners, a fund managed by the Merchant Banking Division of Goldman Sachs, to create the new BJ Services, a privately-held company specializing in fracking services in North America. Fracking—or hydraulic fracturing—extracts oil and gas from below the ground by injecting high-pressure mixtures of water, sand or gravel and chemicals.
Baker Hughes has two existing facilities within Tomball city limits, including the Western Hemisphere Education Center near FM 2920 and Hufsmith-Korhville Road.
“It’s definitely a positive [for Tomball]because we have seen the impact of some of the layoffs [Baker Hughes has] had to do,” said Kelly Violette, executive director of the Tomball Economic Development Corporation. “I think just for us to see that there’s a commitment, and that commitment is here in Tomball, is obviously a very positive sign.”
Baker Hughes acquired BJ Services, a smaller oil service company, in 2010. According to a statement, the new company will assume the BJ Services name. However, details regarding when the new company will be formed have not yet been released.
“With the combination of the Baker Hughes North American land cementing and hydraulic fracturing assets and our Allied Energy Services’ fracturing and cementing businesses, we are excited to create a leader in the pressure pumping sector and to operate under the well-regarded BJ Services name, which for almost 150 years has stood for superior and timely service to its customers and to the market,” said Charlie Leykum, CSL Capital Managment founding partner, in a statement.
CSL Capital Management—a Houston-based private equity firm—and WSEP will contribute a combined $325 million in cash to the new company, $150 million of which Baker Hughes will receive, the statement said. In turn, Baker Hughes will contribute the personnel, expertise, technology and infrastructure of its North American fracking business.
According to a statement, Baker Hughes will retain its international and offshore fracking operations as well as 46.7 percent of the new company. The agreement comes on the heels of a deal by the Organization of the Petroleum Exporting Countries to cut oil production by 1.2 million barrels a day, which caused company stock and oil prices to rise this week.
“With a strong balance sheet and deep operational expertise, the new company will benefit from a sharp focus on pressure pumping to respond quickly to market dynamics and better serve customers,” said Martin Craighead, chairman and CEO of Baker Hughes, in a statement. “In line with our asset-light strategy, this ownership model enables Baker Hughes to participate in the North American [fracking]market, while reducing capital intensity and maximizing shareholder value.”
Baker Hughes’ North American fracking finances will continue to be reported as part of Baker Hughes’ financial results through the end of 2016, according to a statement. The transition to the new BJ Services will begin once the agreement has been approved by regulatory authorities.
In late October, Baker Hughes and General Electric Oil & Gas announced that the two companies expect to create Baker Hughes, a GE Company, in mid-2017. However, no details were provided for how the planned merger would affect Baker Hughes’ Tomball facilities.
“I think for [Tomball] there’s probably a bit of relief in that there’s been some uncertainty [between]this potential deal and [the merger with]GE and not knowing where Tomball would fall in those,” Violette said. “Seeing that [BJ Services] will be headquartered in Tomball is a really, really good sign for us. I think that shows that they obviously are committed to the facilities here and recognize that this is a viable location for this new venture.”