Caterpillar (CAT -0.51%) today announced an agreement to acquire the oil and gas business of The Weir Group (WEGR.Y 4.01%), a Scotland-based engineering solutions company. No, Caterpillar won't be drilling or transporting petroleum-based fuels and natural gas. Instead, it'll be expanding its existing suite of products that serve the needs of oil and gas companies.

Weir Group's oil and gas division manufactures products like valves, pumps, pressure controls, and consumable parts that primarily serve the upstream oil market, such as exploration, drilling, and production of oil wells.

An oil pump jack model on dollar notes.

Image source: Getty Images.

After the acquisition, Weir's oil and gas division will become part of Caterpillar's energy and transportation (E&T) segment, which manufactures several products for diverse industries, including reciprocating engines and turbines for the oil and gas business. The acquisition should add substantial value to Caterpillar's oil and gas portfolio. "This acquisition will expand our offerings to one of the broadest product lines in the well service industry," said Joe Creed, vice president for Caterpillar's oil, gas and marine division.

Oil and gas was the largest contributor to Caterpillar's second-largest segment, E&T, last year. In 2019, E&T generated revenue of $22.1 billion, nearly 24% of which came from oil and gas products and services.

A bar chart showing Caterpillar's 2019 energy & transportation segment sales by end application.

Data source: Caterpillar financials. Chart by author.

Caterpillar will pay $405 million in cash for Weir's oil and gas business, which generated revenue of 612 million pounds ($791 million) in 2019. Caterpillar is flush with cash, listing cash and short-term investments worth nearly $8.8 billion as of June 30, 2020.

For The Weir Group, the sale of its oil and gas division is in line with management's recent decision to shrink the company into a mining technology pure play. The oil and gas business includes more than 40 manufacturing facilities with nearly 2,000 employees, all of which will go to Caterpillar after the acquisition.