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GE Sees Price Pressure But Still Likes Oil

CEO Jeff Immelt tells investors that 40% of the company's energy portfolio is going to be hurt by lower oil prices.
Matthew HellerDecember 17, 2014
GE Sees Price Pressure But Still Likes Oil

General Electric expects a “sluggish” oil and gas sector next year due to falling oil prices but is better positioned than some of its competitors to weather the storm, CEO Jeffrey Immelt told investors.

The oil price slump was a recurring theme at GE’s annual outlook investor meeting Tuesday, where the company issued guidance for 2015, predicting earnings in a range of about $1.70 to $1.80 per share. Analysts on average were expecting earnings of $1.79 per share for 2015, according to Reuters.

GE’s oil and gas business, which makes compressors and other equipment, accounted for just below 12% of total revenue in 2013, and sales are expected to fall next year as low oil prices fuel decreased capital spending by oil companies.

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“We’re really planning the company for a sluggish oil and gas sector in ’15,” assuming crude oil prices will be in the range of $60 to $65 a barrel, Immelt said. Brent crude oil traded near $62 a barrel on Wednesday.

Revenue from 60% of GE’s energy portfolio will be “OK,” Immelt said, revenue from 15% “will continue but orders are going to be very tough to come by, and we see 25% where revenue is going to be hard hit.” The “most volatile part of the mix” is surface drilling, he said, adding, “We’re counting on that thing down more than 10% in revenue.”

But Immelt predicted GE was still “going to grow double-digit EPS next year, even with a much worse oil case than the one we see today, because aviation is doing great and transportation is doing great.” Competitors such as Schlumberger and FMC are not in those businesses, he noted.

“We think [oil] is a seminal business for the world and we want to be in it and we are in it,” Immelt said. “In this kind of volatility, GE is a very good person for any [oil company] to do business with.”

GE has been expanding its oil and gas business with $14 billion worth of deals since 2007. “We like it more at $120 a barrel, don’t get me wrong, but we like this business,” Immelt said.

Featured image: Ed Schipul, via Flickr, CC BY-SA 2.0