IEEFA report: GE’s Q3 loss, write-off likely to be $9+billion

More red ink to follow as O&G division has nearly $25 billion on balance sheet

GE Shares v S&P 500 Oct 2019October 4, 2019 (IEEFA U.S.)  ̶  General Electric’s misreading of changing dynamics in the energy sector and its Oil & Gas (O&G) division’s 2017 merger with oil services company Baker Hughes have cost the company billions, according to a report released today by the Institute for Energy Economics and Financial Analysis (IEEFA).

The report, GE’s $7.4 Billion Loss, Write-off on Baker Hughes: Another Bad Bet on Fossil Fuels, finds that combined losses and write-offs in Q3 may exceed $9 billion and that goodwill in the O&G division are nearly $25 bn, nearly half the conglomerate’s $52.3 bn total.

“GE has continued to bet heavily on fossil fuels, but many of those bets have turned sour for the company and its shareholders,” said lead author and IEEFA financial analyst Kathy Hipple. “The O&G division’s merger with oil services company Baker Hughes was a particularly costly bet, one that epitomizes how GE has been blind-sided by the rapidly evolving energy transition.”

Losses include the company’s $2.2 bn Q4 2018 pre-tax loss on the first sale of BHGE shares in November 2018, and an estimated pre-tax loss and write-off of an additional estimated $7.4 bn from the second sale in Q3 2019.   The $9.6 bn in losses and write-offs have occurred just two years following the merger in 2017.

Further losses and write-offs in GE’s O&G division are likely

“Looking more closely at the data, the losses may be as much as $11.27 billion,” said IEEFA director of finance and report co-author Tom Sanzillo. “This is no small setback and it points to a real lack of vision and financial discipline.”

These distressed sales, in Q4 2018 and Q3 2019, leave GE with nearly 40% of Baker Hughes. The company may face additional value losses as it adjusts its status from majority owner.

“In its Q2 2019 reporting, GE recognized that oil and gas markets continue to be volatile. They also admitted one or more of its O&G units could face more goodwill impairment if macroeconomic, business conditions, or declines in BHGE’s share price emerge, which are all strong possibilities,” said IEEFA’s director of energy finance studies and report co-author, Tim Buckley.

Given the ongoing volatility of oil prices, the oilfield services sector is likely to remain under pressure. Further losses and write-offs in GE’s O&G division are also likely, according to the report.

“Misreading energy trends will continue to bleed revenue from any company unwilling to judge current trends correctly,” said Hipple. “GE needs to stop looking in the rearview mirror and pay attention to the road ahead.”

Authors
Kathy Hipple ([email protected]) is an IEEFA financial analyst.
Tom Sanzillo ([email protected]) is IEEFA’s director of finance.
Tim Buckley ([email protected]) is IEEFA’s director of finance studies, Australasia.

Full report: GE’s $7.4 Billion Loss, Write-off on Baker Hughes: Another Bad Bet on Fossil Fuels

Media Contact
Vivienne Heston ([email protected]) +1 (914) 439-8921

About IEEFA
The Institute for Energy Economics and Financial Analysis (IEEFA) conducts global research and analyses on financial and economic issues related to energy and the environment. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.

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