The North American natural gas and oil rig count should average 2,400 rigs in 2012, up 5% from last year, however, producers are “drastically” shifting the mix of rigs used, Baker Hughes Inc. CFO Peter Ragauss said Tuesday.
The company’s CFO provided a full-year 2012 rig count guidance forecast and discussed earnings during a conference call with CEO Martin Craighead, who spoke with financial analysts about operational results during the first three months of this year. The Houston-based oilfield services firm has provided worldwide rig count tallies since 1944, a yardstick for the energy industry in tracking drilling activity in the onshore and offshore.
“We continue to expect the average annual rig count for North America to grow by 5% from an average of 2,296 rigs in 2011 to an average of 2,400 rigs in 2012. However, the mix of natural gas versus oil has changed drastically,” Ragauss said.
“Compared to 4Q2011, we expect the U.S. natural gas rig count to exit 2012 with 534 rigs, a decline of 275 rigs. We expect the U.S. oil rig count to exit the year with 1,444 rigs, an increase of 251 rigs.”
According to Baker Hughes, the total U.S. rig count on Friday (April 20) was 1,972, significantly higher than the year-ago level of 1,800. Last week the number of rigs engaged in land operations climbed by 19 to 1,904, inland waters activity rose by one to 23, while offshore drilling was up by two to 45. The U.S. gas rig count ended last week up seven from the week before at 631, but it was down by about one-third from its 2011 peak of 936 rigs, reached in mid-October. In the year-ago period 878 U.S. gas rigs were in operation.
Like the top executives at Schlumberger Ltd. and Halliburton Co. have acknowledged in recent days, Baker is experiencing some pressure pumping issues in its land operations as North American operators rapidly shift from gas targets, Craighead said.
The U.S. and Canadian onshore pressure pumping market is constrained, and may be into 2013, said Craighead.
“The margins in North America were lower than the fourth quarter due to challenges in the pressure pumping product line, including the rapid transition from natural gas to oil-directed drilling rig activity, the increasing supply of pressure pumping capacity across the market, as well as company-specific supply chain challenges,” he said during the conference call. “We are addressing our supply chain challenges by improving our distribution network, increasing supplies of critical raw materials and enhancing the utilization of our fleets and other critical assets.”
The company expects to realize “significant benefits from these improvements in the second half of 2012; however, it is clear that the overall market is experiencing pricing pressure that is likely to extend throughout 2012.”
To overcome some of the pressure pumping challenges, Baker has completed some “supply chain enhancements” and also is “maximizing its fleet utilization,” said Craighead. For example, “before we began this quarter [1Q2012], we realized we had challenges in 4Q2011. We had 72 trucking companies just in South Texas. Today we have 12 trucking companies. It makes for better pricing and logistics…People issues, the movement of fleets and the supply chain followed. We expect to see the majority of this pick-up in the second half [of the year], but already we’re getting some incremental gains that will go well into 2013.”
Meanwhile, the company’s performance in the Gulf of Mexico (GOM) improved in 1Q2012, as an uptick in activity in the offshore led to pricing improvements, as deepwater rigs were under construction and higher day rates were imposed. The GOM is close to returning to pre-Macondo well blowout levels, Craighead said.
Despite the issues in pressure pumping, the other oilfield services “continue to post impressive revenue and operating results in North America. Our technological advantages across many of our product lines continue to drive superior performance, and the shift to oil-directed drilling has been very beneficial for our drilling, completions, upstream chemicals and artificial lift product lines.”
Among the hydraulic fracturing (fracking) technology introduced in North America’s onshore early this year was an 11-stage “Frac-Point” system, which has 22 multiport sleeves with proprietary “DirectConnect” ports. The technology allows frack initiation from multiple ports in each isolated horizontal section of a well to maximize reservoir contact. Baker Hughes also installed a 30-stage “OptiPort” completion system for its U.S. land operations, the first deployed in central Oklahoma, which allows the customer to choose where to locate the sleeve and initiate the fracks, with an unlimited number of zones to save time and lower fluid consumption.
Baker also extended its technology to the U.S. offshore early this year by setting the deepest liner to date in the Gulf of Mexico at 33,882 feet, Craighead said.
Net profits in 1Q2012 were nearly unchanged from a year ago at $379 million (86 cents/share) from of $381 million (87 cents). Operating margins in 1Q2012 narrowed to 11.7% from 14.1%, as cost and expenses rose 22% to $4.73 billion. Revenues jumped 18% to $5.86 billion from $4.53 billion; they were down 1% from $5.39 billion in 4Q2011. In North America, the company’s largest segment, revenues climbed 21% to $2.86 billion.
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