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Oil pumps work at sunset on Sept. 11, 2013, in the desert oil fields of Sakhir, Bahrain.
AP/Hasan Jamali
New colossus.
BIG DEAL

GE’s Immelt is betting on Baker Hughes—and on oil prices staying low through 2019

By Steve LeVine

General Electric chief Jeff Immelt says oil prices may go no higher than $60 a barrel through 2019, but that his blockbuster deal to acquire Baker Hughes will work anyway because it will save GE up to $1 billion in taxes.

Immelt made the remarks in a call with analysts following the announcement of an agreement to combine GE’s oil and gas business with Baker Hughes, creating one of the largest oil services companies in the world, with some $32 billion in annual revenue right out of the gate. GE will have a 62.5% stake in the new combined company.

The deal goes both ways. For GE, it capitalizes on two years of low oil prices to capture one of the oil industry’s biggest prizes—the respected Baker Hughes. But Immelt said the deal assumes that oil will be $45 to $60 a barrel oil through 2019, showing that it is weighed down by those same, stubborn prices. He did not provide details of his tax calculations, but said that eventually, GE will save $800 million to $1 billion in taxes with the deal.

Immelt’s oil price forecast is not pessimistic—it falls into the middle range of most forecasts from major investment banks and independent consultants. But in predicating the deal on such prices, he demonstrates that the oil industry may have considerable more pain before any recovery.