Rolls-Royce breaks into fracking
In a marked contrast to its century-old luxury auto and air engine roots, Rolls-Royce (London Stock Exchange: RR.-GB) is forming a "fracking" joint venture with a U.K. engineering company.
Rolls-Royce Power Systems company MTU, which produces engines and automation systems, and Weir Oil & Gas, which makes fracking pumps, claim the venture will serve as a "one-stop shop" for the oil and gas industry.
The venture is entering the market following months of turmoil in oil prices. A glut in oil supply was a factor in the market price plunging from $110 a barrel last June.Brent crude oil (Intercontinental Exchange Europe: @LCO.1) is currently priced around $66 a barrel.
A large part of this glut has been the increase in oil produced by the U.S. fracking industry. Hydraulic fracturing, or fracking, is the process by which oil and gas companies use a mixture of water, sand and chemicals to release and extract fuel trapped within shale formations. However, the process is expensive and criticised by environmental groups.
Read More A start-up that's solved fracking's dirty problem
Keith Cochrane, Chief Executive of the Weir Group (London Stock Exchange: WEIR-GB), believes that the equipment produced by the venture will make fracking operations more efficient and potentially more profitable. In a statement announcing the deal, Cochrane said: "This joint venture again shows our ongoing commitment to innovation which reduces our customers' total cost of ownership and improves productivity.
"By combining the frac pump, transmission and engine into one power system and supporting it using MTU and Weir's service networks, we will deliver significant benefits for our oil and gas customers."
The venture company, which is currently unnamed, is expected to begin operating at the start of 2016.
MTU and Weir Oil and Gas first announced they were collaborating to produce fracking equipment in May 2014. This week's announcement is intended to "broaden their relationship."
Dr. Ulrich Dohle, CEO of Rolls-Royce Power Systems, was enthusiastic about the venture. In the statement, he said: "The new joint venture between MTU and Weir Oil & Gas will provide easier access to a completely integrated pumping power system that addresses the challenges faced by frac site operators."
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