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Baker Hughes Raises Rig Count, Reports Strong Services Demand

April 29, 2011
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The North American drilling services market is tight and getting tighter, squeezed by increased activity in liquids-heavy and emerging shale oil plays, Baker Hughes Inc. CEO Chad Deaton said Tuesday.

More hydraulic fracturing (fracking) equipment and supply services are expected to flow into the marketplace in the last six months of the year, but it may not be enough to fulfill demand, he told financial analysts during a quarterly conference call.

"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 for the first time since 1995, the U.S. oil rig count was higher than the gas rig count for the week ending April 22.

There's plenty of work ahead, said COO Martin Craighead. Baker Hughes is "heavily back-loaded in the second half of the year" for equipment and chemical orders but "we fully expect to deliver what we have budgeted."

So much business, in fact, that the oilfield services operator increased its forecasted rig count for North America. Based on business to date it now expects 2,180 oil and gas rigs will be 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 is forecasting higher demand for oil and gas as the global economy gains steam. The recent earthquake and tsunami in Japan should lead to higher incremental demand in the country for oil and liquefied natural gas, which would continue to support high oil prices, said Deaton.

"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."

Unconventional business also is building globally, but it still remains a minor segment of Baker Hughes' operations, said the CEO. One reason is the lack of equipment capacity in the overseas markets, he aid.

"All in all it's a very small part of our business now but in time I think it will be a significant player," Deaton told analysts.

Each region has different issues that have kept shale development slower than in North America. However, operators have begun drilling exploratory wells in Poland, Germany and China to fracture them and "understand what's there," he said.

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