Profits and revenue for Baker Hughes Inc. hit record highs in the final three months of 2010, for which the company credited ongoing strength in onshore North American drilling. However, Baker Hughes is "concerned" about the pace of offshore permit approvals in the Gulf of Mexico (GOM), the CEO said.

Net income in 4Q2010 jumped more than three-fold year/year (y/y) to $335 million (77 cents/share), compared with $84 million (27 cents) in 4Q2009 and $255 million (59 cents) in 3Q2010. Revenue climbed 82% to $4.42 billion, versus $2.43 billion in the year-ago period and up 8% sequentially. Results included the integration of shale provider BJ Services, which was completed by Baker Hughes last May.

"In North America, margins increased almost 500 basis points sequentially reflecting the ongoing strength of customer spending in unconventional oil and gas plays and price realization," said CEO Chad C. Deaton. "Given high oil prices and relatively low gas prices, customers are increasing drilling in crude oil and liquids-rich natural gas plays where service intensity continues to increase. The trend toward longer horizontal wells with more [hydraulic fracture] stages is benefiting our directional drilling systems, completions and pressure pumping sales."

Deaton told financial analysts during a conference call that the ongoing permit delays in the GOM, particularly in the deepwater, has led many operators to increase workover activity "in order to offset production declines from existing fields. In the fourth quarter 2010, we benefited from increased share of the incremental workover and completion activity as well as increased interest in drilling deep high-pressure, high-temperature wells on the [Outer Continental Shelf]. However, we remain concerned about the pace of permit approval, for both deepwater and shelf drilling, which continues to weigh on the outlook for the Gulf of Mexico."

Despite the slowdown in the U.S. offshore, Baker Hughes management is forecasting gains in the U.S. rig count this year. The Houston-based operator publishes one of the leading rig count summaries.

With more drillers turning to liquids-rich and oily shale plays, Baker Hughes is forecasting a 200-plus jump in the 2011 U.S. rig count from 2010 to 1,740. Last year Baker Hughes said the "actual" U.S. rig count was 1,548. In Canada the rig count this year is expected to be 340, which is down from last year's actual rig count of 348.

In a note to clients, Morningstar analyst Stephen Ellis noted that it had been a "bumpy path" in integrating BJ Services into the company, which had resulted in some "disappointing quarters. However, fourth quarter results were very good, as the company is finally realizing some of the benefits from the merger and its ongoing reorganization efforts...Most of the financial improvement was due to a strong North American market, where Baker Hughes' operating margin now stands at a respectable 22%."

Meanwhile, Swiss-based services operator Weatherford International Ltd. said Tuesday its North American operations also were solid in the final quarter, with revenues up 70% y/y to $1.25 billion and up 14% sequentially.

Operating income from U.S. and Canadian operations totaled $252 million versus $42 million in the year-ago period, and it was up $51 million, or 25%, sequentially. The current quarter's margins in North America improved 180 basis points to more than 20%.

"Continued gains in the U.S. land market coupled with robust Canadian activity levels led to higher sequential results," Weatherford management said. "Oil-directed drilling and liquid-rich plays continued to drive activity levels higher, while reduced Gulf of Mexico operations weighted negatively on region results. The Artificial Lift, Drilling Services and Stimulation and Chemicals product lines contributed strong results for the quarter."

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