A lot has happened to Baker Hughes, a GE Company (NYSE:BKR), over the past five years. It reached a deal to merge with Halliburton only to have that transaction fall apart. It then combined with GE's (NYSE:GE) oil and gas division to form an even larger-scale oil-field service company. Add to that all the ups and downs in the energy sector, and Baker Hughes has had an interesting past few years.
While the next five years might not be quite as busy, Baker Hughes will likely look quite different in half a decade than it does right now.
GE will be a distant memory
When Baker Hughes merged with GE's oil and gas division, it left the industrial giant with a controlling stake in the combined oil-field services company. GE, however, has since completed two share sales to bring in cash so that it could pay down debt. As a result, the company's interest in Baker Hughes is now down to 36.8%.
As a result of GE's latest sale, it no longer owns a controlling interest in Baker Hughes. Accordingly, the oil-field service company intends to drop GE from its name and ticker symbol. Meanwhile, it has reduced the number of GE representatives on its board of directors from five to one.
While GE has been a major storyline for Baker Hughes in recent years, it will likely be a distant memory in a few years. That's because the industrial giant appears set to sell its remaining shares over the next year or so as it seeks to further bolster its financial position. So Baker Hughes should be entirely on its own in five years.
It will be increasingly diversified
Baker Hughes has evolved over the past five years. Its primary focus used to be on providing oil-field services to the upstream segment of the oil and gas market. Now it offers a range of products and services to customers across the entire value chain of the oil industry (upstream, midstream, and downstream). While the upstream market was still its largest revenue driver last year at 60%, that's down from 75% in 2014. That's due mainly to the growth of its midstream business, which contributed 25% of its revenue last year, up from 11% in 2014.
The company, however, wants to be even more diversified in the future. It's aiming to reduce its reliance on the more volatile upstream market by increasing its exposure to the industrial and chemical industries. It's doing that by making targeted acquisitions as well as investing in research and development so that it has the right products to serve those markets. It's targeting for sales to industrial and chemical customers to make up as much as a quarter of its total, up from 10% last year. Add in the anticipated continued growth of its downstream and midstream businesses, and Baker Hughes should be much less reliant on the upstream market half a decade hence.
It will lead the way in changing how the oil industry operates
While the oil industry has historically resisted change, Baker Hughes is embracing it. One of the company's aims, for example, is to digitize its processes as a way to improve its financial performance. The company wants to use things like artificial intelligence (AI) to improve efficiency, which should boost its profitability.
In addition, Baker Hughes is committed to becoming more socially responsible. It wants to become a better steward of the environment by inventing technologies that reduce its customers' impact as well as enable them to use resources more wisely.
These aren't mere words. Baker Hughes wants to lead the energy transition by investing in advanced technologies so that its customers will have net-zero carbon emissions by 2050. While that's a long way off, the company will likely have made measurable progress toward that ambitious target within five years.
Baker Hughes won't be the same in five years
Investors probably won't recognize Baker Hughes in five years. For starters, it should no longer have any ties to GE. Meanwhile, it will hopefully be much less dependent on the upstream oil and gas market as it focuses on capturing opportunities in the industrial and chemicals markets. Finally, it will likely hardly resemble the old-school oil-field service company of yesteryear as it embraces technology and focuses on becoming more socially responsible.
These changes should put Baker Hughes in a much better position to create value in the coming years. That's why investors will want to take a closer look at what Baker Hughes has to offer.