GE Expands Technology Portfolio to Address Offshore Drilling Challenges

GE continues to expand its technology portfolio to address the challenges of offshore drilling and production and the rigors of deepwater drilling. Several GE business units are showcasing their latest products and services for the offshore sector in Booth 3163 at the 2013 Offshore Technology Conference (OTC), which is expected to draw nearly 90,000 attendees.

"With one of the industry's most comprehensive portfolios of advanced technology solutions and services, GE Oil & Gas is helping to solve complex challenges all around the world," said Dan Heintzelman, president and CEO of GE Oil & Gas. "GE's global scale and deep R&D experience, combined with cross-business technology sharing and innovations from our recent acquisitions uniquely position us to help our customers be more efficient, productive and competitive."

At the conference, GE Oil & Gas introduced the next-generation SeaONYX BOP surface control system and operator interface. The new system is designed to control a deepwater blowout preventer, which is used to rapidly seal an oil well in an emergency. The technology incorporates for the first time GE's Mark Vle hardware and Proficy software tools—the same proven control systems that have been deployed in a wide range of GE power generation applications worldwide, such as on GE's advanced fleet of wind and gas turbines.

GE Oil & Gas also announced the first application of its latest SeaSmart Offshore Package turbine solution with Statoil. It's designed to power offshore oil rigs but with a substantially smaller footprint and reduced weight, which can be critically important when space is at a premium on an offshore platform. When compared to the package launched in 2009, the new technology reduces the total footprint by 24 percent. The total weight drops by 22 percent, driven in part by the use of new GE composite materials.

Other new technologies from GE Oil & Gas at OTC include:

Driving efficiency in the unconventional gas sector: On a drilling site, a manifold lets an operator control flows, acting much like a switchboard. GE's new skid-mounted modular frac manifolds are designed to safely allow simultaneous drilling operations on multiple well pads. The modular design enables fast installation and allows units to be shipped to and from well sites with GE crane trucks—which reduces freight costs by eliminating the need for "wide load" permitting,

Listening for leaks under the sea: GE Oil & Gas' Measurement & Control business is highlighting two innovative remote monitoring and sensing solutions for the subsea sector. The Acoustic Leak Detection System uses passive, acoustic hydrophone technology to detect and locate subsea oil and gas leaks by discriminating the noise of a leak from other sources of sound. The new Subsea Multi-Domain Condition Monitoring combines specially designed electric emission monitoring and acoustic hydrophones to monitor the operating condition of subsea machinery and processes.

Award winning deepwater technologies: The organizers of OTC have given two "Spotlight on New Technology" awards to GE Oil & Gas. The RamTel Plus system and Remotely Operated Vehicle Subsea Display Panel won for providing real-time, electronic measurements of the position of a blowout preventer's ram, which closes a well, and the pressure required to operate the sealing elements. The Deepwater BOP Blind Shear Ram won for its next-generation technology that is able to slice through today's larger diameter well pipes and casings—which also are stronger due to advanced metallurgy—and seal a well in an emergency.

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Hess Divests Asian Assets to Focus on Exploration, Production Portfolio

Hess Corp. announced Monday it is further whittling its operations as it aims to turn itself into a pure exploration and production company. But the move failed to quell a rebellious shareholder seeking to break the company up even further and put its own slate of board nominees in place.

Hess said in a letter to shareholders that it is exploring options for its entire downstream business and pruning its Asian portfolio, while also unveiling a share-buyback program of up to $4 billion and more than doubling its quarterly dividend. It also proposed new board members, addressing concerns that the company's board is too close to top management and not experienced enough in the energy sector.

The moves come as Hess continues to battle with hedge fund Elliott Management, which seeks to replace much of the board and argues that Hess could be worth more as two slimmer companies focused respectively on North American and international operations. But Hess Chief Executive John Hess said Monday morning that the changes announced have been in the works for months, and were not prompted by the challenge from the activist shareholder.

"This is not something that just happened overnight," Mr. Hess said Monday in a conference call with analysts. "Elliott got on the train after it left the station," Mr. Hess said.

Shares rose 3.5% Monday morning after the announcement. In a statement Monday, Elliott said the changes did not go far enough, and questioned how long Hess has taken to restructure itself and whether the company will be able to execute the new strategy.

"For a company that has hidden, for 17 years, behind an entrenched board, unfocused strategy, opaque disclosure, and flagrant disregard for its obligations to shareholders, today's promises are neither credible nor sufficient," the fund said in a statement.

Hess said it would divest its Indonesia and Thailand assets, look for a way to monetize its Bakken midstream assets by 2015, and fully exit its retail, energy-marketing and energy-trading businesses. Earlier this year, Hess closed its last remaining refinery in Port Reading, N.J., and said it would sell its network of terminals.

Some of the changes Hess announced Monday are in line with demands made by Elliott, but Hess described the hedge fund's central thesis, that Hess should divorce its holdings in the fast-growing Bakken oil formation in North Dakota from costly international assets, as "little more than financial engineering based on flawed assumptions."

The company said in its letter that Elliott's proposals are shortsighted efforts to run up the value of the stock that ignore long term potential for growth. Elliott didn't immediately respond to requests for comment.

Hess said it expects to increase production by 5% to 8% annually, driven by the Bakken. But it needs cash generated by other assets in the portfolio, which includes operations in the Gulf of Mexico, Malaysia, and Ghana, to fund work in the Bakken and in Ohio's Utica formation. Without that funding, the U.S. shale assets would likely be sold off, the company said.

But Elliott disagreed with Hess's description of its funding model, arguing that the company squandered the income from conventional assets and that it would still have access to credit markets as a more streamlined company.

"Hess's conventional portfolio did not fund the development of the Bakken, rather it funded $4.5 billion of exploration failure and over $4 billion of acquisitions of conventional assets and downstream investments," the fund wrote.

Argus research analyst Phil Weiss said he thinks becoming a pure-play exploration and production company makes sense for Hess.

"When I looked at the Elliott presentation [in January], absent this whole thing about splitting U.S. and international, I thought they made really salient points," Mr. Weiss said.

But questions remain about Hess's cost structure, which Mr. Weiss said is higher than its peers, and how quickly Hess will be able to bring that down. Hess has said its exploration and capital spending will both be lower this year, with more cuts to come in 2014.

Still, Mr. Weiss said, "it feels like they're executing really slowly."

Hess is raising its quarterly common dividend 150% to $1 a share on an annual basis, beginning in the third quarter of this year.

Two slates of board nominees will go head to head at Hess's annual meeting this spring: one group nominated by Hess, and another group nominated by Elliott.

Hess's slate of nominees includes the chief executive of General Electric Co.'s energy business, John Krenicki Jr., and ConocoPhillips's former senior vice president of exploration and production for the Americas, Kevin Meyers. Hess also appointed former Deloitte chief executive, James Quigley, who will stand for election in 2014.

Elliott's nominees to Hess's 14-member board include Rodney Chase, former deputy chief executive at BP Plc, Karl Kurz, former chief operating officer at Anadarko Petroleum Corp., and Harvey Golub, former chief executive officer at American Express Co.

Daniel Gilbert contributed to this article.

Copyright (c) 2012 Dow Jones & Company, Inc.

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Active Income Portfolio reaps dividend rewards

The purchase of Henderson Far East Income (HFEL), brought into the active income portfolio last month, might on the face of it seem an odd decision given the stellar performance of some other Asia-Pacific income funds.

The investment trust has managed a 47% return over five years and a 19.7% rise in 2012 to date, but that performance still lags the returns of the sector leaders. Aberdeen Asian Income (AAIF), the sector leader, has returned 132% over five years, while Schroders Oriental Income has achieved 89%.

Both outperform Henderson in terms of the value of their underlying assets. Aberdeen's 70% rise in net asset value (NAV) far exceeds Henderson's 10% NAV rise, as does Schroders' 32%. However, buying top performers trading at a premium to NAV carries its own risks: investors will pay a 4.35% premium for Aberdeen and a 2% premium for Schroders. And while these sector leaders yield under 4%, Henderson brings in more than five.

That income deficit may seem irrelevant in the context of the far superior total return, but it isn't. The danger for market leaders in any fund or trust sector is of a reversion to the mean, something that is particularly likely in fast-changing Asian markets.

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