Evercore ISI Optimistic on 'Industrial Internet of Things' Following GE Minds + Machines Conference - (GE) (BHI) (BP)

November 18, 2016 11:58 AM EST
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Evercore ISI attended the GE Minds + Machines conference this week, where they were able to gain an improved understanding of General Electric Company's (NYSE: GE) open source, cloud-based software platform, Predix. Predix is designed to connect machines and processes together, in what GE refers to as the “industrial internet of things”. In early October, Everscore highlighted Predix as one of the primary ‘Big Data’ drivers behind GE's merger with Baker Hughes Incorporated (NYSE: BHI), an oil field services company that provides the oil and gas industry with products and services for oil drilling, formation evaluation, completion, production and reservoir consulting. By initiating the deal with BHI, GE virtually doubled its exposure to an upstream services space.

Everscore ISI analyst James West commented, "Very early on during the initial rumblings in late October, we highlighted Predix as one of the primary ‘Big Data’ drivers behind the GE/BHI merger, but had a very loose conceptual grasp on the platform and its oilfield implications. After the GE Minds + Machines conference this week, a company-wide look at Predix has vastly improved our understanding of its potential in the OFS space, and further solidifies our constructive view of the merger from a timing perspective. By initiating the deal with BHI, GE virtually doubled its exposure to an upstream services space that has certainly lagged the rest of the industrial space in terms of leveraging data (and more broadly, the ‘Internet of Things’ canvass on which Predix is being masterfully painted across all of GE’s operating segments). In terms of enhancing productivity and cutting out inefficiencies, the OFS sector is ready for Predix. Similarly, GE is ready to use Predix to change the way we think about OFS."

James West continued, "As part of the GE Minds + Machines event, Lorenzo Simonelli hosted a GE/BHI specific presentation in the San Francisco Giants’ clubhouse to hash out, in more detail, the business strategy for the New BHI moving forward. In particular, the heads of the various O&G operating segments communicated the fact that the combined company now has a full cycle offering to leverage significant cost and revenue synergies (we are normally dubious of sales synergy projections, but recognize that larger international customers have approached GE O&G and suggested more service allocation to GE with an enhanced upstream portfolio). We note that the New BHI plans to take some of BHI’s service segments, including wireline, well stimulation, coiled tubing, drilling tools and plans to sell and rent that equipment to independent operators. This would foster capital-light November 18, 2016 4 exposure to some of the more “traditional oilfield services” in order for the newco to capture upside in the NAM recovery. By and large, the legacy GE O&G is an aftermarket services business, and the company will apply these equipment-focused strategies to BHI’s suite of land-levered services."

Asset Performance Management (APM) is a suite of cloudbased software and service solutions powered by Predix. Machines and equipment are monitored and data is gathered to gain a more complete and accurate view of the asset. An APM application being piloted in the O&G sector is Plant Operations Advisor (POA). The solution was co-created with BP p.l.c. (NYSE: BP) and is being piloted at their Atlantis platform in the GoM. If successful, POA will be deployed to other BP facilities in the next year and would represent the largest-scale deployment of GE’s APM technology thus far.

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