Oilfield services provider Baker Hughes Inc. said Wednesday “rapidly changing market conditions,” primarily in the pressure pumping business in North America as drillers move rigs out of natural gas fields, likely will impact profits in the first quarter.
During a conference call with analysts in January to discuss the company’s 4Q2011 performance, CEO Martin Craighead said the company was facing issues that stemmed in part from adjusting to a shift by onshore producers as they transitioned from gas basins to more oil and liquids-rich plays (see Daily GPI, Jan. 25).
“North American results were disappointing,” Craighead said at the time of the company’s end-of-year performance. “We had a strong performance that was offset by problems in pressure pumping where we experienced a variety of cost and efficiency challenges in ramping up demand…We expect it to take time, but we are taking steps to fix these problems.”
The Houston-based company continues to be stressed by “the continued shift in U.S. rig activity from natural gas to oil and liquids-rich basins and other market forces,” it said. The “pressure pumping product line is currently experiencing decreased fleet utilization, lower pricing, higher than expected personnel and logistics costs, and shortages of and higher costs for critical raw materials, such as gel.” In Canada, “despite higher sequential rig count levels, the lower natural gas-directed pressure pumping activity and an early spring break-up are also negatively impacting first quarter operating profit before tax.”
Baker Hughes now expects North America operating profit before tax margin for 1Q2012 to be between 13.2% and 14.2%, compared to 18.7% in 4Q2011. The operating profit before tax margin outlook for international operations for 1Q2012 is expected to be 12.2-13.2%, compared to 15.6% in 4Q2011, mostly because of the “seasonality of product sales, weather, geographic mix and project delays in Latin America.”
The company is “reviewing its budgets for the year, and expects to adjust 2012 capital expenditures for the pressure pumping product line to align with current market conditions.” A quarterly earnings conference call is scheduled on April 24.
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