American industrial giant General Electric (NYSE:GE) is investing billions of dollars in hydraulic fracturing or fracking, placing a bet that cutting-edge science could improve profits for clients and reduce the adverse environmental and health effects of the shale gas boom, the Huffington Post reported on Monday,
May 27. GE’s share price rose in pre-market trading on the NYSE on May 28.
GE Investing in Fracking
The Huffington Post quoted Mark Little, Senior Vice President and Chief Technology Officer at GE, as saying that while the company had done “almost nothing” in oil and gas just over a decade ago, it had invested more than $15 billion (£10 billion) in the past few years. “We like the oil and gas base because we see the need for resources for a long time to come,” Little said, adding that concerns about drilling needed to be carefully managed.
In April, GE said that it was going to build a new global research centre in Oklahoma dedicated to driving innovation and technological advancements in the oil and gas sector. The new facility represents a $110 million investment by GE and will focus on technologies enabling safe, efficient and reliable production, delivery and use of unconventional oil and gas. “Unconventional resources, and shale gas in particular, may be one of the biggest productivity drivers of our lifetime,” GE Chairman and CEO Jeffrey Immelt said in a statement last month.
Fracking, as the controversial technique for shale gas extraction is known, involves pumping water and chemicals into rocks to force hard-to-reach gas out. Fracking has raised environmental concerns due to the risk of chemicals and waste water contaminating drinking-water wells and reservoirs.
GE’s share price rose 1.10 percent to $23.29 in pre-market trading on the NYSE on May 28.
GE’s Oil and Gas Push
In addition to investing in oil and gas research, GE is also going to acquire Texas-based pump manufacturer Lufkin Industries Inc (NASDAQ:LUFK). The deal, which was announced in April, will allow GE to increase its presence in the energy sector.
The transaction, expected to be completed in the second half of 2013, has won the approval of the US Federal Trade Commission, which works with the Justice Department to enforce antitrust law. Immelt has unveiled plans to focus more on growth in the energy-rich shale fields of North Dakota, Texas and elsewhere in the US.
And while investing in oil and gas, GE is considering shrinking its finance business. As Bloomberg reported on May 22, the company was looking at spinning off parts of its finance unit through an initial public offering. The newswire quoted Immelt as noting that the businesses which GE might exit were “great assets, fantastic, but we think our commercial finance assets are very strong and very consistent with our competitive advantage”. He however did not specify which units could be divested.
GE’s share price was 1.08 percent up at $23.78 in New York as of 9:28 EDT on 28 May 2013.