OSLO Oil services firms Baker Hughes (BHI.N) and Aker Solutions AKSO.OL agreed on Tuesday to form an alliance for their subsea divisions in an attempt to reduce costs as their customers - oil companies around the world - cut back on spending.
Their non-incorporated alliance also follows a similar move by Cameron (CAM.N) and Schlumberger (SLB.N), two of the world's biggest subsea players, which teamed up in 2012 to create joint-venture OneSubsea.
The oil and gas sector has experienced a big rise in costs over the past decade as energy companies ramped up capital spending, pushing up costs ranging from labor to equipment.
But now energy firms are having to rein in spending plans because oil prices have leveled out and the International Energy Agency expects them to fall in 2014 and 2015.
The alliance, to be based in Houston, aims to increase recovery rates in deepsea fields and work on a subsea processing plant, an innovative technology that could eventually shift oil and gas production equipment from platforms to the bottom of the sea, saving on costs and increasing recovery.
Aker Solutions shares surged on the agreement and were 4.5 percent higher by 1221 GMT, ahead of a 0.5 percent rise in the European oil and gas index .SXEP.
The alliance will combine Aker Solutions' strengths in subsea production and processing systems with Baker Hughes' expertise in well completions and artificial-lift technology, the two firms said in a joint statement.
"Deepwater subsea fields have so far been characterized by low recovery rates, and new discoveries in deeper and more hostile environments are making these fields even more costly to develop," Baker Hughes' CEO Martin Craighead said.
"The single-digit recovery rates currently being achieved at many of these fields don't support a sustainable business model," he said.
Although the two firms will stay separate, they will work on joint solutions and may bid for projects jointly.