Baker Hughes Inc., the third largest oilfield services provider in North America, on Wednesday reported a big decrease year/year in earnings, in part because of a 25% oversupply of pressure pumping equipment used in unconventional natural gas and oil plays.
A lack of onshore drilling activity combined with low natural gas prices, which crippled the Houston operator in 4Q2012. The drag on earnings from overcapacity in the pressure pumping unit masked a strong performance in other business units, CEO Martin Craighead said during a conference call.
“Our fourth quarter results reflect the challenges faced by the industry as North American activity declined sharply toward the end of the year, and we continue to deal with unfavorable pricing conditions in the pressure pumping market,” he said. “As a result, we experienced a decline in North America revenues and margins this quarter. The revenue declines were almost entirely offset by gains in our international business, driven by record revenues in all of our international segments during the quarter.”
The “headwinds on pricing” in North America are “not over yet, and it’s going to be a drag on the overall North America margin for all of ’13, easily,” Craighead told analysts.
Net income fell in 4Q2012 to $211 million (48 cents/share) from year-ago profits of $331 million (76 cents). Adjusted quarterly profits were 62 cents/share, 1 cent higher than average forecasts. Revenue was down slightly at $5.22 billion, which close to half of it from North America. Baker had warned in December that quarterly margins and revenue would be below expectations.
Oilfield services leader Schlumberger Ltd. managed to offset a North American onshore decline with a solid performance in the Gulf of Mexico (see Daily GPI, Jan. 22). Halliburton Co., the second largest provider, reports its results on Friday.
Baker’s surplus capacity translated into 125 pressure pumping fleets across North America that now are idle or underused, said Craighead.
“All else being equal, the U.S. would need at least 300 additional drilling rigs to come back online in order to get those idle fleets fully up and utilized,” he said. However, there appears to be little relief in sight for the land services operations.
Baker, which compiles a global benchmark oil and gas rig count, is predicting an increase in U.S. drilling to 1,880 rigs by the end of this year, up about 125 from current levels. For the week ending Jan. 18, the number of of U.S. rigs drilling for oil and natural gas liquids fell to 1,316, its lowest level in 10 months. The gas-directed rig count was slightly ahead of the 13.5-year low of 413 posted 10 weeks ago, Baker data indicate.
Rig efficiencies continue to improve, Craighead noted. The number of wells drilled per rig is growing again this year following an increase in 2012, led by a better understanding of the reservoirs, as well as technology — points that Schlumberger’s management team made during their conference call.
CFO Peter Ragauss said there’s a “big question mark” about where North America’s drilling activity is headed. He told analysts, “I’m not going to call that for you.”
Instead, Baker plans to reduce capital spending by almost one-third (30%) this year from 2012 to $2.87 billion. The share of spending targeted for North America this year is expected to be down by about 33% from 50%.
Bright spots in the U.S. division included Baker’s performance in the Gulf of Mexico, “where our business expanded more than 30% for the year, based on a rebound in deepwater activity, share gains in drilling and wireline services, and modest improvements in price,” said Craighead. “Looking ahead, we see a favorable mix of development work building, and this will play well to our strength in completions and production.”
Baker also showed gains technology-wise. The company deployed an integrated suite of formation evaluation technologies that resulted in “significant production improvement and cost savings” on a multi-well project in the Marcellus Shale. The first four wells were completed conventionally, using geometric hydraulic fracturing designs with 21 stages in each well. For the fifth well, Baker combined its wireline RPM lithology evaluation and XMAC formation fracture tools, using the findings to recommend a 16-stage, nongeometric completion design that improved production by around 30% relative to the other four wells.
In Western Canada, Baker’s technology helped to drill the longest horizontal well and lateral section in the Cardium formation “with 100% reliability,” it said. “Using the AutoTrak rotary steerable system and Baker drillbits, the well was drilled to a total depth of more than 18,000 feet (5,485 meters), with a horizontal section of nearly 10,000 feet (3,050 meters). The project was completed with zero failures and zero incidents.”
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