North American onshore activity isn't showing any signs of recovery, with demand continuing to decline for stimulation, drilling services and completions product lines, Baker Hughes Inc. reported Wednesday.
The company delivered its third quarter results, but no conference call was held as the company is in a quiet period for its pending merger with Halliburton Co. However, CEO Martin Craighead still offered a dim view of prospects going forward, mirroring those of his peers at Halliburton and Schlumberger Ltd. (see Shale Daily, Oct. 19; Oct. 16).
The CEOs all agree on one thing: North American activity has fallen into a dark, deep hole.
Baker’s North American customers are focused "increasingly on managing cash," and "we are experiencing a current shift in spend favoring production optimization projects over exploration and development," Craighead said.
"As such, we are seeing stronger interest in our production offerings, particularly upstream and refinery chemicals, that provide our customers with optimized production from existing wells and increased ultimate recovery.
"Consistent with our earlier forecast, we expect further activity reductions and pricing pressures to continue across the globe for well construction for the remainder of the year, as our customers adapt their spending to the lower oil price environment."
Through December "we expect activity in North America to decline as our customers adjust activity for lower commodity prices, exacerbated by an extended holiday impact," he said. "We remain focused on proactively managing our cost structure, efficiently reducing our working capital, and strategically targeting revenue opportunities to continue to increase profitability, generate positive cash flow, and maintain a strong balance sheet."
Net losses totaled $156 million (minus 36 cents/share) in 3Q2015, versus profits a year ago of $602 million (86 cents). Adjusted for one-time items, which included severance payments, capacity reductions and merger-related costs, net losses totaled $22 million (minus 5 cents/share).
Revenue fell to $3.8 billion in 3Q2015, down 39% from a year ago and 5% sequentially. Operating income losses totaled $101 million, compared with profits of $661 million in the year-ago period. For the quarter, capital expenditures fell by 31% sequentially and 58% year/year to $178 million.
For its North American business, Baker lost $169 million in 3Q2015, versus profits a year earlier of $380 million. Total operating profit before tax margin was 2.1% in the quarter, compared with 11.7% a year earlier.
North American revenue declined 57% year/year and 9% sequentially to $1.4 billion, driven primarily by reduced onshore U.S. activity, most notably in stimulation, drilling services and completions product lines, lower pricing across the region, and an unfavorable mix of activity in the Gulf of Mexico. The decline was offset in part by Canada's seasonal activity recovery, though to a much lesser extent than in prior years.
North American adjusted operating profit margin slumped to a minus 11.2% from 12% in 3Q2014 and minus 8.5% in 2Q2015. Ongoing cost management efforts, which included massive layoffs and capacity reductions, helped contain decremental operating margins to 30%. Adjusted operating profit margin increased 140 basis points sequentially.
"Despite the erosion of margins driven by the sharp decline in activity and an increasingly unfavorable pricing environment, decremental operating margins of 20% sequentially on reduced revenue were achieved as a result of ongoing cost reduction measures," Craighead said. "All product lines have been unfavorably impacted by the activity drop, with production chemicals and deepwater operations showing the most resilience."