Smith Planning Consolidation, Houston Move : Company to Merge Its Tool, Drilling Divisions

In a streamlining effort, Smith International Inc. said Wednesday that it is consolidating its Smith Drilling Systems division with its Smith Tool division and will move the combined unit to Houston.

Oil service industry analysts expect that the reorganization will eliminate management layers and reduce costs for Newport Beach-based Smith International, which is in the midst of a Chapter 11 bankruptcy reorganization.

In a prepared statement, the company said that benefits of the consolidation “will include enhanced customer service, improved market coverage and technology leadership.” It added that the new combined division will be called Smith International( and will be headed by Doug Rock, who was previously president of Smith Tool.

The Smith announcement comes on the heels of Baker International’s move of its corporate headquarters two weeks ago from Orange to Houston. Most of Baker’s manufacturing operations are already in the Houston area and its proposed merger partner, Hughes Tool Co., is also headquartered there.

Smith officials were not available Wednesday to comment on the terse announcement, and it remains unclear when the consolidation will occur, when Smith Tool will move to Houston or how many Smith Tool employees may be relocated.

Smith Tool is the second largest manufacturer of rock bits for oil drilling, following Hughes Tool.

Apparently the headquarters of the parent organization will remain in Newport Beach. “That doesn’t make sense. You should be where your business is,” said Earl Stolz, an oil services analyst with New Orleans-based Howard, Weil Financial Corp.

Still, the relocation of Smith Tool was anticipated. Last year, Smith agreed to sell Smith Tool’s 68-acre Newport Beach headquarters and manufacturing facility to Hillman Properties West Inc. for $46 million and a 10% share in the future development of the property. As part of the agreement, Smith Tool said it would lease back the buildings for up to three years.

Last April, a Smith real estate consultant said that in three years Smith planned to move its Smith Tool division closer to the homes of its blue-collar work force, who tend to live in the San Bernardino-Riverside area.

Hillman Properties executives did not return calls Wednesday to discuss their development plans for the Smith Tool site.