Baker Hughes Inc. on Wednesday reported a surge in profits for the first quarter, boosted by a huge demand for oilfield services across U.S. and Canadian unconventional natural gas and oil plays.

The Houston-based company plans to roll out more hydraulic fracturing (fracking) equipment across the United States and Canada in the last six months of the year, but it may not be enough to handle demand, CEO Chad Deaton said Tuesday.

“In North America, on land, overall spending levels have increased as incremental spending on oil and liquids-rich natural gas plays has more than offset weakness in dry gas plays,” Deaton said. “The rig count in Canada is already dominated by oil-directed drilling and as of last week, for the first time since 1995, the U.S. has more rigs drilling for oil than natural gas.”

COO Martin Craighead told analysts that Baker Hughes is “heavily backloaded in the second half of the year” for equipment and chemical orders but “we fully expect to deliver what we have budgeted.”

Based on business to date the oilfield services operator now expects that there will be 2,180 oil and gas rigs operating in North America this year, up from a December 2010 forecast of 2,080. The U.S. number, as well as the Canadian number, both were set 50 rigs higher for the year. The increased rigs will be oil-heavy, said Deaton.

“Service intensity in the unconventional shales continues to increase as we drill longer horizontal wells requiring more frack stages and complex completions.”

Today Baker Hughes’ “pressure pumping is sold out in North America. We expect to accelerate the deployment of new hydraulic fracturing fleets in the second half of 2011; however, we do not expect that supply will match higher demand for fracturing this year.”

The company also expects “Gulf of Mexico activity to be at a nice build for the rest of the year,” said Deaton. However, he expressed concern about the level of activity going forward.

The Bureau of Ocean Energy Management, Regulation and Enforcement to date this year has issued 10 new permits to drill in the GOM and “a significant amount of work has already been contracted and work for several other permits that are being reviewed has already been assigned,” Deaton noted.

“Offshore markets will benefit from the resumption of deepwater activity in the Gulf of Mexico,” he said. “We are encouraged by the recent permitting activity. However, we also recognize that the 10 deepwater wells recently permitted to be drilled will only be a fraction of the activity levels we saw before the drilling moratorium was announced.

“This level of activity is insufficient to offset the 380,000 b/d, or 23%, drop in Gulf of Mexico oil production forecast by the EIA [Energy Information Administration] for 2012 compared to 2010. We have continued to invest in our training, safety and competency assurance programs during the last year, and we are well positioned in the Gulf of Mexico, with our suite of advanced technology and services and experienced personnel, for a resumption of deepwater drilling activity.”

Thirty-three rigs were operating in the GOM prior to the Macondo well blowout; there are 13 rigs “permitted but not necessarily working” there today, he noted. “We expect to see a second wave of permits — 11 permits — hopefully to come sometime in 3Q2011 or 4Q2011…for a total of 21 rigs, plus or minus.

“I don’t think all of them will be back to drilling at the end of this year. I think there will be some challenges…but business will be building” through the rest of the year.

Baker Hughes is forecasting higher demand for hydrocarbons as the global economy grows. Because of the recent earthquake and tsunami in Japan, the company expects oil and liquefied natural gas “to experience higher incremental demand, supporting high oil prices,” said the CEO. “With shrinking spare capacity, we believe that exploration, development and production spending will increase, raising our confidence that the second half of 2011 will set the stage for a strong 2012.”

Net income in the first quarter reached $381 million (87 cents/share), compared with the year-ago earnings of $129 million (41 cents). Revenue jumped to $4.53 billion, up 78% from $2.54 billion in 1Q2010. North American revenue, which is the company’s largest, more than doubled in the latest period.

Results did not include earnings from BJ Services, which Baker Hughes acquired in April 2010. Capital expenditures in the first three months of this year were $429 million, depreciation and amortization expense was $315 million, while dividend payments were $65 million.

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