Baker Hughes Trimming Down, Planning Recovery
After a $297 million net loss in 1998, it should come as no
surprise that Baker Hughes is cutting capital spending this year
and will not be out shopping for assets or new combinations like
many other industry companies. Drilling activity continues to plumb
new depths (figuratively, not literally), reaching a record low
last week with 498 rotary rigs operating in the U.S.
But the $600 million spending cut planned by the Houston-based
drilling services company is huge by any standard. That's the level
Baker Hughes CEO Max L. Lukens said his company is targeting this
year. By September, its capital spending program will be less than
one-third what it was in 1998. Most of the cost cutting is coming
from staff reductions that will leave Baker with about 7,000 fewer
employees on its staff this year compared to 1998.
"We should not be busy in the acquisition phase this year,"
Lukens said, noting that in addition to the depressed drilling
market the company is busy trying to digest its merger with Western
Atlas. Baker Hughes expects to save about $135 million as a result
of merger consolidation.
Despite the cutbacks, Lukens said the company actually will
increase spending on research and development to prepare for a
recovery. Like most other industry officials speaking at the Howard
Weil Energy Conference in New Orleans yesterday, he said he expects
a market recovery soon, possibly within six months for the gas
industry and certainly by year end for oil, meaning gas prices will
average more than $2/Mcf and oil will rise to more than $18/bbl.
"If you don't drill, supply will eventually decrease. It's as
simple as that," said Lukens. "We had a severe reduction in
drilling activity. As good as technology is to offset costs, it
cannot offset production declines of this magnitude," said Lukens,
adding he expects to see a turnaround in the rig count by mid-year.
Meanwhile, the Baker Hughes U.S. rig count slipped below 500 for
the first time last Friday to 498. That's off five rigs from 503
the previous week. In addition, the Gulf of Mexico rig count
(included in the U.S. count) dropped six to 96. The Canada rig
count dropped 26 to 68, making for a North American count of 566,
down 31 from the previous week and off 453 from the same time a
year ago when 1,019 rotary rigs were working.
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