Baker Hughes' $5.5 billion acquisition of BJ Services will add heft to the nation's third-largest oil field services company as it tries to take on bigger rivals and eyes international growth. It also could herald more consolidation in the Oil Patch after a period of relative calm, analysts said. At a minimum, they said, the deal will fill a major gap in Baker Hughes' portfolio, adding pressure-pumping equipment and services that are widely used in natural gas drilling in North America and are in increasingly high demand abroad, they said. 'Basically, what this does is put them more on a level playing field with the Schlumbergers and Halliburtons of the world,' said Ken Medlock, a fellow in energy studies at Rice University's Baker Institute, referring to the world's top two oil field services companies. The deal, which reunites two Houston companies that had been joined before Baker Hughes spun off BJ Services in 1990, creates a company with more than $17 billion in annual revenue and nearly 60,000 employees in dozens of countries around the world. It comes as major oil field services companies are trying to diversify their business beyond mature basins in North America and pursue more lucrative work with state-owned oil companies in Africa, the Middle East and elsewhere. Baker Hughes had previously used BJ Services as a pressure-pumping sub-contractor in order to bid on some of those contracts, but it became clear that combining the two companies was more efficient, Baker Hughes Chairman and CEO Chad Deaton said Monday. 'It's hard to build that capability when you don't own the company,' he said, in a conference call with financial analysts. In North America, a bigger pressure pumping business also will allow the combined company to capture more revenue from shale formations and other unconventional resource plays where natural gas production is expected to continue growing, the companies said. Pressure pumping, which is used by gas producers to increase output from hard-to-reach pockets in reservoirs, accounted for less than 1 percent of Baker Hughes's revenue in 2008, but will grow to approximately 20 percent after the merger, closer to what Halliburton and Schlumberger bring in with the business, the company said. With the deal, Baker Hughes also expects annual cost savings of about $75 million in 2010 and $150 million in 2011. Mostly, that will come from eliminating redundant corporate functions and consolidating sales offices and properties, including some in North America. The company did not say how many jobs would be affected. In January, Baker Hughes said it would lay off 1,500 workers amid a downturn in business resulting from the economic downturn. Two months later, the company said it needed to cut an additional 1,500 jobs. In April, BJ Services said it cut 11 percent of its workforce, mostly in the U.S., after a similar drop off in business. Rivals Schlumberger, Halliburton Co. and Weatherford International have also pared jobs this year. But Gary Flaharty, a Baker Hughes spokesman, said recent job cuts were a response to short-term market conditions, while the merger is designed to align the company with future business trends. BJ Services' Chairman and CEO Bill Stewart called the deal an 'attractive combination for all of BJ Services' constituencies.' The transaction price represents a 16.3 percent over the closing price of BJ Services stock on Friday, and BJ Services stockholders will own 27.5 percent of Baker Hughes' outstanding shares. Baker Hughes expects the deal, which is still subject to anti-trust clearance and stockholder approval, to close before the end of the year. Stewart said consolidation is needed in the oil field services business, particularly in North America, where there is a surplus of equipment and business is down amid weak commodity prices and tepid energy demand. Geoff Kieburtz, an analyst who follows Baker Hughes with Weeden & Co. in Greenwich, CT, said it's 'likely' there will be additional mergers in the oil field services industry as the market recovers in the next year, but believes the deals will be different. Rather than two big public companies combining, like the Baker Hughes transaction or National Oilwell Varco's acquisition of Grant Prideco last year, the mergers will be more targeted, aimed at gaining access to a part of the world or a certain technology, he said. brett.clanton@chron.com 