In a move to cement its status among top-tier energy service companies, Baker Hughes Inc. (BHI) on Monday agreed to acquire BJ Services Co. (BJS) in a deal valued at $5.5 billion.

The transaction, which company executives say could be completed as early as the end of this year, would give Houston-based Baker Hughes the ability to offer the same integrated approach as larger rivals Schlumberger Ltd. (SLB) and Halliburton Co. (HAL). Crude oil and natural gas producers both in the U.S. and abroad are showing an increasing preference for hiring contractors that can provide a full spectrum of services that range from surveying potential hydrocarbon reservoirs to enhancing production from aging fields.

The merger "is making us much more competitive as we go after all these complex projects around the world," said Baker Hughes Chief Executive Chad Deaton in a conference call with investors.

Baker Hughes shares were recently down more than 7% at $35.33, a sign that investors are skeptical of the deal's price. BJ shareholders will get $2.69 in cash and 0.40035 share of Baker Hughes for each share of BJ. That values BJ Services at a 16% premium to Friday's closing price. BJ shareholders will own slightly more than one-quarter of the combined company.

Simmons & Co. analyst Bill Herbert said that the premium paid for BJ Services "isn't offensive," but it represents about 30 times the company's earnings in 2010. By 2011, the multiple will fall to 15 times earnings, compared with a projected multiple of 12 at Baker Hughes for that year, Herbert said in a note.

This consolidation is expected to open more doors to major overseas energy developments, which outshine exploration and production in North America - traditionally a major market for both Baker Hughes and BJ Services. Business in North America is biased toward exploration and production for natural gas, a sector that's likely to remain weak as prices have recently slumped to seven-year lows below $3 a million British thermal units.

Baker Hughes expects to realize annual cost savings of about $75 million in 2010 and $150 million in 2011 from the merger. The combination is expected to be accretive to earnings per share in 2011.

Both companies, like many in the oil patch, have been reporting slumping results of late during the price plunge, which is crimping production and exploration as demand wanes for oil and natural gas.

This deal is the biggest in the oilfield services patch since deepwater drilling company Transocean Ltd. (RIG) combined with Global Santa Fe in 2007.

It "fills a compelling strategic need for BHI as (national oil companies) are calling for increasingly more and not less integration," Herbert said in a note.

-By Angel Gonzalez, Dow Jones Newswires; 713-547-9214;angel.gonzalez@dowjones.com

-By Brian Baskin, Dow Jones Newswires; 212-416-2453; brian.baskin@dowjones.com