Proposed Joint Venture between Baker Hughes Company and Akastor ASA

Reference:

CCCS 400-140-2021-005

Notifying Party:

Baker Hughes Company; and Akastor ASA

Notifying Date:

16 June 2021

Summary of transaction:

(i) the names of the merger parties;

a. Baker Hughes Company (“Baker Hughes”); and

b. Akastor ASA (“Askastor”),

(collectively, the “Parties”).

(ii) a description of the transaction;

This notification relates to the establishment of a joint venture by Baker Hughes and Akastor. The newly established joint venture company will be jointly controlled and owned equally, 50/50, by the Parties (the “Proposed Transaction”). The joint venture will combine Baker Hughes’ Subsea Drilling Services (“SDS”) business and Akastor’s subsidiary MHWirth AS (“MHWirth”).

Description of industry

The Parties are active in the global oilfield equipment and services industry.

The proposed joint venture (the “JV”) will primarily supply topside drilling equipment currently supplied by MHWirth; pressure control equipment currently supplied by Baker Hughes’ SDS; marine drilling risers[1] supplied by both Parties; and complete drilling equipment packages comprising all the abovementioned equipment for floaters. It will also provide maintenance and repair services to their installed base. In addition, the JV will sell drilling equipment for onshore rigs, and offshore jack-ups and platform rigs (collectively referred to as non-floaters) and also complete drilling equipment packages for jack-ups and platform rigs.

Economic and strategic rationale of the Proposed Transaction

The main rationale for the Proposed Transaction is to establish a company that will be better placed to offer complete drilling equipment packages and aftermarket services for offshore drilling rigs and to compete with the current market leaders.

With regard to complete drilling equipment packages, the Proposed Transaction will enable the JV to offer lower prices for such packages by eliminating double margins and reducing engineering hours through standardisation packages and reduced interface engineering. The Proposed Transaction will also create synergies in the form of reduced risk on project execution. It will also create an easier supplier-purchaser relationship between the yard and the JV as the JV will be able to supply all the principal components and their interface in a complete package and will not need to rely on sub-suppliers for any of the principal components.

For aftermarket services, the JV will be a one-stop-shop for servicing of all the principal components and also have clear responsibility for the total turnkey contract for operations in the aftermarket. This is important as drilling rigs have a long lifespan and require significant maintenance and repair activities over this period of time.

In addition, given the Parties’ highly complementary product offering and installed base, the Proposed Transaction may also allow the Parties to better and more efficiently provide services to their existing customers by combining their geographic footprint, skills and assets. It may also enable the JV to increase their offering in the onshore market, and to offer their equipment for other applications such as mining, slurry pumps and construction.

(iii) a description of the business activities of the merger parties worldwide and in Singapore;

Baker Hughes

Baker Hughes, based in the United States of America, is a global provider of integrated oilfield products, services, and digital solutions that enhance productivity, minimise risks and lower costs across the entire spectrum of oil and gas development, i.e. upstream (evaluation, drilling, completion and production), midstream (liquefied natural gas, pipeline and storage) and downstream (refinery and petrochemical solutions).

Baker Hughes will contribute its SDS business consisting of equipment for drilling rigs, notably pressure control equipment (blow out preventers (“BOP”)[2] and BOP control systems, wellhead connectors and diverters) as well as marine drilling risers to the joint venture.

Akastor

Akastor is an investment company based in Norway with a portfolio of companies in the oilfield services sector in addition to other smaller-sized holdings.

Akastor will contribute its wholly owned subsidiary MHWirth to the joint venture. MHWirth supplies topside drilling equipment[3] and marine drilling risers and has limited activities within non-oil segments. In addition, MHWirth will contribute its drilling waste management services through its subsidiary STEP Oiltools Pte Ltd.

(iv) a description of the overlapping goods or services, including brand names;

The Parties are of the view that they overlap in the supply of marine drilling risers.

(v) a description of substitute goods or services;

The Parties have not identified any goods or services that are not for marine drilling risers that can be used by customers as a substitute for marine drilling risers.

The Parties are not aware of any products that can be considered close substitutes to marine drilling risers. The Parties are of the view that from a supply-side perspective, suppliers are generally not likely to easily and quickly (i.e. less than a year) switch to supplying marine drilling risers if they are not already in the same space.

(vi) the applicant’s views on:

a. definition of the relevant market(s);

The Parties submit that the relevant market is the global supply of marine drilling risers including (i) the aftermarket services and spare parts of marine drilling risers, and (ii) marine drilling accessories.

b. the way in which competition functions in this market;

The Parties submit that price and quality are the main drivers of competition in the marine drilling risers market. The Parties also compete via tenders for projects.

c. barriers to entry and countervailing buyer power; and

Barriers to entry

The Parties submit that there are no factors that serve as insurmountable barriers to entry into the marine drilling risers market, either in Singapore or globally:

a. The marine drilling riser is not a complex product, and does not require extensive research and development.

b. Intellectual property rights are not difficult to overcome, especially for traditional designs, which are well understood and not typically protected by significant intellectual property. In addition, even though more modern designs are subject to certain intellectual property rights, this does not constitute a material barrier of entry as the Parties are able to license such modern designs.

c. Brand loyalty is not of particular importance in the drilling equipment markets generally, or in the marine drilling riser market specifically. Customers choose marine drilling risers primarily based on price.

d. Economies of scale do not constitute a material barrier to entry, given the very small number of marine drilling riser orders per year.

e. Manufacturing capability and material costs do not constitute material barriers to entry. There are a number of manufacturing units worldwide that are capable of manufacturing marine drilling risers, and there are no impediments to access to sources of supply.

Countervailing buyer power

The Parties submit that customers are able to exercise countervailing buyer power. The customers of marine drilling risers, being the yards and ultimately the rig owners, are sophisticated market operators who are able to leverage significant buying power within the marine drilling risers market, especially given the current overcapacity within the drilling rig equipment markets generally, and marine drilling riser market specifically. These customers would be able to leverage their market power to secure new market-entrants – if they felt this to be sufficiently advantageous.

d. the competitive effects of the merger (non-coordinated, coordinated and/or vertical effects, as relevant).

Non-coordinated effects

The Parties submit that the Proposed Transaction will not give rise to any non-coordinated effects in view of the existence of strong existing competitors with strong offerings and significant capacity, the absence of any insurmountable barriers to develop and offer a marine drilling riser, and the presence of sophisticated and strong customers that are able to exercise countervailing buyer power.

Coordinated effects

The Parties submit that the Proposed Transaction will not give rise to coordinated effects in the marine drilling riser market as the price of each contract is typically negotiated on an individual basis and on a case-by-case basis, which makes it difficult for the Parties and their competitors to coordinate pricing or terms of sale, and the presence of sophisticated and strong customers that are able to secure new market entrants if they felt this to be sufficiently advantageous.

Vertical effects

The Parties have identified a vertical relationship in relation to the provision of complete drilling equipment packages by MHWirth, which can be further segmented into complete topside and subsea drilling equipment packages for floaters (“TSP market”) or complete drilling packages for jack-ups and platform rigs (“CDP market”), and Baker Hughes is a sub-supplier of pressure control equipment such as BOP-stacks, wellhead connectors and diverters for complete drilling equipment packages.

The Parties are of the view that there would not be any risk of foreclosure or similar anti-competitive effects as the Parties will neither have the ability or incentive to foreclose competitors in either the TSP market or the CDP market in view of the presence of strong existing competitors in the upstream market for BOP and BOP control systems, diverters for floaters, and wellhead connectors for floaters.

[1] Marine drilling risers are used on offshore floaters and connect the topside with the pressure control equipment on the seabed.

[2] A BOP is a large, high-pressure safety valve or similar mechanical device used to manage wellbore pressure and the flow of well fluids during drilling, and to prevent the uncontrolled flow of liquids and gases during drilling operations.

[3] The topside refers to the structure on the offshore drilling unit that sits above sea level that conducts the drilling operation and process, i.e. lowers, operates and subsequently retrieves all submersible drilling equipment.

 Decision: Following its assessment, CCCS has concluded that the Proposed Transaction, if carried into effect, will not infringe the section 54 prohibition of the Competition Act (Cap. 50B).

Decision Date:

Read the media release.

The Grounds of Decision will be made available in due course.