GE snaps up Wood Group’s well support division

£1.75 billion deal will help US giant recover more oil from existing wells

Oil and gas engineering services firm Wood Group has signed a major £1.75 billion deal with General Electric to sell its well support arm to the US giant.

The Aberdeen-based company’s well support arm manufactures electric submersible pumps which are used to maximise oil production at existing wells and from new reserves. General Electric said that demand for products and services that enhance oil recovery should grow significantly due to an expected decline in production from existing wells and the increasing complexity of developing new reserves. It added that the use of electric submersible pumps was one of the most effective methods of enhancing production. “Electric submersible pumps will be paramount in helping oil producers meet the rising global demand for hydrocarbons, as maturing fields are expected to account for 70% of global oil production output by 2012,” GE said.

Wood Group chief executive Allister Langlands said: “The significant investment programme in well support over the years and the expertise and dedication of all our people is reflected in the price achieved.”

Following the sale, Wood Group said it would concentrate on its engineering and production and gas turbine services divisions. It has also pledged to continue its growth strategy of geographic expansion in its core areas. This follows a deal in December to buy Aberdeen-based rival PSN in an agreement worth £600 million. Wood's production arm generates 47% of its revenues from the North Sea, but the addition of PSN in areas such as the US, the Caspian Sea and Russia will reduce its dependence on the UK and offer higher-margin work. The group currently employs more than 29,000 people and operates in 50 countries. The well support division has around 3,800 staff worldwide.

Shares in Wood Group rose 13% in trading on the FTSE 250 today, with the company stating that more than half of the proceeds of the GE deal would go to shareholders. Other engineering stocks also rallied, with Weir Group, Invensys and Rolls-Royce posting gains. The aeroengine maker unveiled a long-term services deal with airline Emirates worth £1.4 billion.