A version of this story appears in the December 2017 edition of Oil and Gas Investor. Subscribe to the magazine here.

Upstream. Midstream. Downstream. Fullstream?

When two uber-large companies merge and bring different pieces of the puzzle together, maybe it’s time to rethink the jargon.

Baker Hughes Inc. and GE Oil & Gas merged earlier this year, creating what, in President and CEO Lorenzo Simonelli’s vision, is a “fullstream” company that delivers one unified view with predictive analytics of oil and gas equipment, operations and process data that improves operational efficiency, speed and decision-making.

Given both companies’ longtime involvement in the oil and gas industry, this “marriage” is taking the best from two great worlds of brands and history. Baker Hughes, for instance, comes from Hughes Christensen, Baker Oil Tools, Baker Atlas, etc. GE Oil & Gas, meanwhile, bought turbomachinery leader Nuovo Pignone, and then Vetco-Gray and a host of other companies, to enter the upstream oil and gas industry in a meaningful, ultimately, industry-leading way.

The result? Perhaps the world’s largest oilfield service, technology and equipment provider.

Oil and Gas Investor recently visited with Simonelli to gather information about this new relationship.

Lorenzo Simonelli, a 23-year veteran with GE and most recently president and CEO of GE Oil & Gas, took over the president and CEO roles of newly formed Baker Hughes, a GE company, when the oilfield service giant and GE Oil & Gas completed their merger in July, becoming a standalone public company.

Investor: It seems like this kind of merger is an early sign of things to come. How would you say the landscape has changed for service providers over the past few years?

Simonelli: The decreasing price of oil has caused a radical rethinking of productivity and the need for productivity going forward. Unconventional shale and the abundance of gas have really changed the landscape. This didn’t happen overnight. Just like in the ’80s when we thought we reached peak oil, the industry had to change the way it operated.

It’s the same thing today in this lower-for-longer environment. Now you’ve got to find new ways of taking out inefficiencies. Our customers are in a new world. The international oil companies are asked, “Where’s the return? Where’s the cash flow, and where are the dividend payments?” The national oil companies are challenged by pressure around taking government money into large capex projects and continue to be driven by “the need to be efficient.’”

And you’ve got these new independents that have been created and may have financing from third parties such as private equity that often bring on additional expertise and partners to execute these projects. So it means that now an oilfield service company has to be able to provide new capabilities and new solutions to enable these projects to go forward at lower commodity prices.

Investor: You’ve mentioned that disruptive change is the new normal. Can you go into a little more detail?

Simonelli: Yesterday, you would have had a traditional way of drilling a well. You would have worked with multiple providers for every stage of the well’s development—drilling services, rig contractors, lift providers, among others—and then somebody else to actually move the product and, ultimately, get it to an end point. Now we are interconnecting these operations and collaborating with our customers upfront.

But the real disruption comes when you bring in data and analytics. For example, capturing data while drilling provides a clearer picture of the subsurface to more accurately drill and place the well. It also helps us make more informed decisions around the overall completion and production strategy. These things are driving efficiencies and productivity gains that enable us to continue, but it’s a disruption.

I think technology is the biggest disruptor that we have. And this is not uncommon in other industries. If anything, the oil and gas industry is slower at adopting some of the technologies that you see in automotive, aviation, power, etc. And today the oil and gas industry is still two to three times more inefficient than other industries.

Investor: About 10 to 15 years ago, a lot of the major service companies wanted to become one-stop shops, and it didn’t really work very well because different people involved with the oil companies had different providers or different tools that they preferred. Do you think we’ve gotten past that barrier?

Simonelli: No, I think it’s a process of change that will happen with some customers faster than others. And we do have different types of customers. Each of them takes a different approach. What we do have, though, is much more discussion on outcome-based capabilities. I think that is different.

Before, it was about the turning of a wrench. Now it’s about outcomes—greater efficiencies, improved production and lower costs per barrel. It’s a different dialogue, and it’s being enabled by the visibility and the opportunity to collect data.

Created in partnership with TransCanada, BHGE's NovaLT family of gas turbines designed for midstream pipeline compression reach a speed of 7,800 rpm and achieved an 89% or higher compressor efficiency.

An example is asset performance management. BP has installed the POA (plant operations advisor) solution, which uses Predix and asset performance management capabilities on one of its offshore platforms, and the system enables the company to take dispersed operational data that previously were not connected and have that data reviewed in one consolidated base. This allows better outcomes, improves facility reliability and helps prevent unplanned downtime.

BHGE Smart Helmets directly connect field service engineers to senior engineers in office headquarters while they inspect equipment in the field, creating the ability to share information in real time and alleviating delays.

Investor: What makes your company unique in this environment?

Simonelli: We’re combining two companies with great brands and history in the oil patch. There’s Baker Oil Tools and Hughes bits and others on the Baker side. Then there’s Edison from the General Electric perspective. We’re marrying technology, and now we’re able to take new capabilities from the GE store such as 3-D printing and additive materials, digital, power, gas turbines and aviation monitoring and bring it all into the oil and gas space. That’s going to have a huge transformative effect as we go forward.

Think about 3-D printing. Previously, you would have to cast a drill bit. Why not design it and then 3-D print it at the wellsite? If you need a spare part, you can 3-D-print a spare part. We can think about new designs and materials we make our parts in as well. This is a huge opportunity.

Digital capabilities are another opportunity. Big data can drive big outcomes. One percent reduced NPT is equivalent to a hundred million dollars in some cases. And yet, even today, less than 5% of oil and gas equipment is actually digitally connected and used to make key operational decisions. The average offshore rig has 30,000 sensors attached that generate data. And yet, so far, no more than 1% of it is used to make decisions. This is an astounding amount of unused but potentially essential information.

We can monitor the performance of our electrical submersible pumps, and we combine that with the information from the reservoir. We’ve been able to increase the recovery rates and increase production by 5% to 6% in some fields in the Middle East.

These are things that are out there now, and I think we’re going to be able to really connect all of the interspersed pieces and take out the inefficiencies. Our term “fullstream” means we’re offering solutions from the upstream to the midstream to the downstream, though we’re not always going to sell a fullstream solution. The ability to integrate solutions and link data and output together will continue to be transformative.

Take an example such as Twinza, which we announced in early August, an offshore project off of Papua New Guinea. We’ve got the appraisal well, we’ve got the reservoir information, we’ve got the subsea capability, and we’ve got the topside equipment coming. So we’re able to enhance the offering and make it outcome-based and more streamlined for Twinza.

Look also at the opportunities that we have to connect lifting equipment through the life cycle of the well. We’re the biggest provider of lifting equipment now within the industry. We can look at the life of the well and change the equipment that’s necessary to optimize its performance.

Investor: You’ve said before that you plan to “redefine the process.” What do you mean by that?

Simonelli: This early collaboration with the customer—breaking down the siloes—not only in the upstream but also as we go into mid and downstream, is so important as we partner to help get these projects advanced with our customers. I also think we’re going to redefine the process by focusing on safety, simplification and productivity. There are inefficient processes and challenges we can help solve together with our customers. New technology and partnerships will continue to redefine and accelerate the process.

For example, if you think about the setting of an oil field, it tends to be in a remote location. Today people get into a pickup truck and look at each of these sites and take readings. There’s a huge amount of associated time, and there’s also the safety perspective. But there are so many innovations in inspections and the type of data and readings we can get now—and even how we get them.

Why not do this through drones? You have drones that are able to pick up moisture. You have drones that are able to pick up readings of gas. You have drones that are able to monitor pipelines. Those are the type of challenges that we’re focused on with customers, and that’s the way we can continue to transform the industry.

Investor: As a standalone company, will Baker Hughes still have access to GE’s global platform and access to its knowledge base?

Simonelli: Very much so. One of the prerequisites of the formation of BHGE is that the intercompany linkages between the company of GE and us remain in place. We have access, relative to technology in the GE Store, and they also benefit by being able to partner and connect to the oil and gas industry. There is a great deal of overlap and opportunity to share insights, especially on the power generation side between these industries. So, it goes both ways and is mutually beneficial.

Investor: The legacy GE Oil & Gas side brings a large footprint in turbomachinery to the new company, particularly equipment used in LNG liquefaction. What is your outlook, then, for the LNG export buildout that’s occurring here in the U.S.?

Simonelli The LNG market continues to be over-supplied in the near term and with gas prices pressured in most markets. The long-term value proposition for LNG remains positive. Take North America, for example: You have an abundance of gas, and with that comes the ability to create LNG. We think that LNG is a fuel that is very beneficial for the future and will continue to grow. There are a number of export terminal projects here in North America awaiting final investment decision that we are supporting.

Investor: How many of the proposed LNG export plants do you anticipate will ultimately be built?

Simonelli: It’s hard to say exactly which ones will and which ones won’t. There are many factors driving it, including financial backing. But there’s an ample marketplace for it. And the demand’s there, though. If you were to look at, say, 2021, 2022, you’ve got to start really thinking about construction in 2018 or 2019, or you won’t be ready.

This is a global market, and there’s infrastructure all over the world that will need to be built, and so we will continue to pursue work on many of them.

Investor: What is your strategy for gaining competitive advantage in offshore development solutions?

Simonelli: When you refer to offshore and deepwater, it’s all about making the projects economical to go forward, and that’s the opportunity that we have through our product and service mix. We’re looking at standardization of equipment, brownfield opportunities and interlinkage of services and equipment. We’ve got an opportunity to drive that productivity.

We also feel that offshore and deepwater has a role to play in the mix of the portfolios of our customers, and so we’ll hope to see projects go forward. But it will be very much defined by the price point at which we can help achieve them.

Investor: What do you see as the greatest opportunity ahead for BHGE, and what’s your greatest challenge?

Simonelli: I think our greatest opportunity is to redefine productivity in the industry by providing new solutions that enable a linkage of industrial and digital applications as well as interconnected solutions that optimize production. It becomes much more outcome-based.

If I look at the biggest challenge, none of us have a crystal ball on the geopolitical situation and the uncertainty that happens on a day-to-day basis. It’s hard to call anything in the short term. So we’ve got to stay nimble and flexible to be able to navigate the short term and to be there for the long term. And that’s why the focus on operational integration, operational efficiencies, quality and safety are crucial.

Investor: After working with Jeffrey Immelt—an iconic CEO—for so long at GE, what did you learn from him?

Simonelli: I’ve had the fortune of being under the tutelage of Jeff and other GE leaders for the last 24 years. Jeff had market insights and was a great commercial mind; he was able to see around corners. His ability to do that was something that I hope to be able to take with me and definitely look to take the lessons he taught me into what I do every day.

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