Lifted by a major natural gas order from longtime partner Qatar Petroleum, Baker Hughes Co. saw its revenue climb and equipment orders increase during the third quarter by 4% sequentially.
CEO Lorenzo Simonelli said he sees positives for natural gas, pointing to the major liquefied natural gas (LNG) order in Qatar. However, like his fellow oilfield services executives at Schlumberger Ltd. and Halliburton Co., energy demand has begun to flatten as Covid-19 snakes its way across the globe.
“After significant turmoil during the first half of the year, oil markets have somewhat stabilized,” Simonelli said. “However, demand recovery is beginning to level off and significant excess capacity remains, which could create volatility in the future.
“The outlook for natural gas is slightly more optimistic as forward prices have improved with strong demand in Asia and lower expected future gas production in the U.S.”
Orders for the quarter climbed by 4% sequentially to $5.1 billion, but they were down by one-third year/year. The sequential increase was driven by more orders in the Turbomachinery & Process Solutions (TPS) and Digital Solutions (DS) units, partially offset by lower orders in Oilfield Services (OFS) and Oilfield Equipment (OFE). Equipment orders were up 17% sequentially and service orders were down 6%.
The decline in orders was attributed to “lower order intake across all segments,” management said. Equipment orders were down year/year by 40%, with service orders off 28%. The total book-to-bill ratio in 3Q2020 was 1; the equipment book-to-bill ratio was 1.1.
Baker’s remaining performance obligations, or RPO, ended September at $23 billion, a sequential increase of $100 million. RPO was $8.3 billion, up 4% sequentially. Services RPO was $14.7 billion, down 1% sequentially.
There were some solid gains for TPS in 3Q2020, as orders expanded for LNG equipment. Orders jumped 44% sequentially to nearly $1.9 billion. Revenue in the segment grew by 30% sequentially and 26% year/year.
Of note was a major LNG order from Qatar Petroleum for multiple main refrigerant compressors at the Qatargas North Field East (NFE) project. The award included four LNG mega trains, representing 33 million metric tons/year of additional capacity. The updated compression equipment also is expected to reduce emissions by 5% versus previous technologies.
TPS also achieved execution milestones for LNG projects in the third quarter. In September, mechanical and performance tests were completed for expander-compressors for Novatek’s Arctic LNG 2 project. TPS also completed delivery milestones for the Calcasieu Pass LNG project for Venture Global LNG Inc., shipping the first two modular liquefaction trains from Baker Hughes’ facility in Italy to the United States.
In addition, TPS was awarded a contract in Latin America for a floating, production, storage and offloading project, aka FPSO, for power generation, compression and related equipment, that includes six gas turbines and two high pressure compressors for gas reinjection.
The DS unit also secured several contracts to deliver advanced technologies for LNG, power generation and pipeline infrastructure.
Meanwhile, remote operations are becoming an ever more important business for the OFS segment, Simonelli noted. Of note, 83% of global drilling services jobs in 3Q2020 were remote, compared with 72% in the second quarter and 60% in 1Q2020.
Remote drilling increased mostly in Asia Pacific and the Middle East, and 100% of drilling jobs were completed using remote operations in Latin America and the Russia Caspian region.
Mindset Step Change
“On the economic front, the global economy has rebounded from the severe contraction experienced in the second quarter,” Simonelli told investors. “However, the recovery so far has proven to be quite uneven and the risk of a second wave impacting economic demand remains relatively high. While some industrial sectors have experienced a rebound in activity, others have remained somewhat suppressed.
“The current environment has also resulted in the acceleration of different parts of the economy, including technology adoption and the acceptance of new ways of working and living. Importantly, one of these areas where we have been witnessing a step change in activity and mindset is the broader energy industry.”
The pandemic “has revealed the speed at which the environment can respond to lower carbon levels. This has accelerated the debate on how to fuel economic growth while transitioning to a lower carbon future.”
The energy transition acceleration is “in society at large, and increasingly from our customers…We also believe that the changes rapidly unfolding across the oil and gas landscape warrant an acceleration of this strategy.”
On the cost side, Baker is continuing a “rigorous” reduction program outlined in April, to target $700 million in annualized savings by the end of the year.
“Through the third quarter, we have achieved approximately 75% of our target and believe that we will likely achieve a higher run rate by the end of the year,” said the CEO. “On the portfolio front, we have already divested of several businesses this year and will continue to evaluate further actions, specifically around businesses that likely don’t have the potential to meet our return requirements.”
Simonelli did not share what could be for sale or whether the company could exit some businesses or form joint ventures and partnerships.
“Given the subdued upstream outlook, the primary growth opportunities we see within our existing product and service footprint are the broader industrial sector, specialty chemicals and nonmetallic materials,” he said. “On the industrial side, we see the opportunity to develop a solid industrial platform by leveraging the strongest core competencies within our TPS and Digital Solutions segments.”
Meanwhile, the company is advancing technologies to support the energy transition. For example, TPS successfully tested what it said was the world’s first hybrid hydrogen turbine designed for a natural gas network with Italian pipeline giant Snam SpA.
The turbine test blended hydrogen with natural gas in Snam’s current transportation network infrastructure. The test, using a NovaLT 12 gas turbine with a 10% blend of hydrogen and gas, compressed and moved the fuel blend through the pipeline network, while using the same fuel to power itself.
In the OFS business, the Lucida advanced rotary steerable service was introduced to integrate hardware, software, automation and remote connectivity to help customers drill faster and deliver more precise wells.
OFE also launched the Terminator vessel-deployed subsea wellhead cutting system, using a unique mechanical wellhead removal method to reduce time, fuel consumption and safety risks. Terminator was launched with Wintershall DEA in Norway, cutting a subsea wellhead from an abandoned exploration well in 360 meters of water in 35 minutes, compared to up to six hours with alternative abrasive cutting methods.
Within DS, the company continued to gain traction with Flare.IQ technology, securing a five-year contract with a North American customer. Flare.IQ is designed to help operators manage their flaring assets remotely and to reduce methane emissions.
Net losses totaled $170 million (minus 25 cents/share) in 3Q2020, versus year-ago profits of $57 million (11 cents).
Revenue was $5 billion, a 7% increase from the second quarter but down 14% year/year. North America revenue fell 7% from the second quarter to $559 million, while international revenue was down 3% at $1.75 billion. Operating income was up $47 million sequentially, primarily driven by cost efficiencies and restructuring.
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