June 27 (UPI) -- General Electric's divestment from Baker Hughes shouldn't be seen as a reflection of the health of the exploration and production sector, an analyst said.
GE announced Tuesday it was planning to shed its 62.5 percent stake in Baker Hughes, a company that provides services for exploration and production in the energy sector. Known as the upstream sector, the exploration and production side of the industry suffered during weakened market conditions two years ago.
John Flannery, chairman and CEO of GE, said that by shedding Baker Hughes, along with GE's healthcare segment, both businesses would be able to strengthen their respective market positions.
Companies like Baker Hughes were forced to look for new partnerships when investments were choked off after the price for Brent crude oil dropped below $30 per barrel in early 2016. Rival company Halliburton made an unsuccessful takeover bid for rival Baker Hughes last year and Schlumberger, the largest company of its kind, spent much of last year establishing joint ventures with its industry partners.
Mhairidh Evans, a principal upstream analyst at consultant firm Wood Mackenzie, told UPI the divestment says more about GE's plans to simplify its operations than it does about Baker Hughes.
"Baker Hughes remains a tier one player and, while the oilfield services market is currently challenging, we expect conditions to strengthen throughout the two-to-three year divestment timeframe that GE states," she said Wednesday. "The divestment will improve the strategic direction for Baker Hughes and is a positive step for the business."
The company said growing sectors like liquefied natural gas could lead to increased activity in the coming years and signs for 2018 were encouraging, though offshore work was still under pressure.
First quarter revenue for Baker Hughes was down 7 percent from the fourth quarter at $5.4 billion, but up 1 percent year-on-year. Among its contracts, the company landed work with Kinder Morgan for service in the Permian shale basin, the most productive in the United States.
A spokeswoman for Baker Hughes told UPI the road ahead is clear for the company.
"Baker Hughes is a strong and differentiated company positioned for growth," she said.