FRANKFURT (Reuters) - Siemens (SIEGn.DE) Chief Executive Joe Kaeser sought to calm concern that a slide in prices would hurt an oil and gas business on which the German engineering group has spent billions of euros.
Kaeser, who took the helm in a boardroom coup last year, splashed out $7.6 billion in September to buy U.S. oilfield equipment maker Dresser-Rand, paying a relatively high price to beef up the group’s presence in the U.S. shale oil and gas industry.
“Of course new business could be affected if the oil price continues to be down,” Kaeser said at an investor conference on Tuesday. However, he added that falling prices should boost demand for high-margin services as customers seek to cut costs.
Crude oil prices CLc1 have dropped to five-year lows and billions of dollars worth of oil and gas exploration projects are expected to be put on hold in the coming months.
ConocoPhillips (COP.N) said on Monday that its 2015 capital budget would be 20 percent, or about $3 billion, lower than this year’s, the biggest spending cut by a U.S. oil and gas producer in dollar terms.
Kaeser said he would not consider pulling out of the Dresser-Rand deal, Siemens’s biggest since it bought Dade Behring in 2007, despite the oil price fall.
“The average cost of taking out oil in the United States has come down from $72 (per barrel) in 2012 to $57 in 2013, so you can see that the productivity that oil & gas service providers helps companies a lot to bring down costs,” he said.
JP Morgan recently said that the market underestimated the risk that falling oil prices posed for Siemens’s business because relatively healthy U.S. demand for gas turbines would not be sufficient to offset declining sales in the Middle East and other oil producing countries.
It said it preferred the stocks of Siemens rivals with a lower exposure to oil-producing sectors and countries, such as Schneider Electric (SCHN.PA), Philips (PHG.AS) or Rexel (RXL.PA) to Siemens and Switzerland’s ABB ABBN.VX .
Siemens, whose products range from gas turbines to high-speed trains and industrial automation software, unveiled a corporate overhaul in May that will focus more on high-margin services and help it make up ground on more profitable rivals such as Switzerland’s ABB and U.S.-based General Electric (GE.N).
Shares in Siemens were down 1.8 percent at 92.41 euros by 8:26 EST, underperforming Germany's blue-chip DAX index .GDAXI, which was 1.4 percent lower.
Reporting by Maria Sheahan; Editing by Keith Weir