Summary
Baker Hughes reported net income for Q-3 of $0.18/share, down from Q-2's $0.28/share. Q-3 North American margins rebounded from the low of the second quarter but international results were disappointing. Revenue in Latin America declined because of reduced revenue from Venezuela, Argentina, Bolivia and Chile. Europe, Africa, Russia and Caspian declined except for Angola. The Middle East Asia Pacific declined as rig counts went down. With a new $300 million contract, 2010 should improve.
Analysis
Reports from several service companies and oil producers suggest that the second and third quarters of 2009 represent a flattening out of the severe decline that began in the fall of 2008. While most company executives are modestly optimistic, the consensus is that 2010 will only be marginally better. A great deal of uncertainty still exists and it is still difficult to estimate what capital and exploratory budgets will look like in 2010. The international majors in general plan to maintain high expenditures but all have indicated that where possible, they would concentrate on production rather than exploration. BakerHughes, like most service companies, has just about completed its stern cost reduction execution and it looks like the bulk of employee layoffs are history. The merger with BJ Services will improve margins in the pressure pumping sector and inasmuch as there is little overlap of activity, the consolidation will be relatively smooth. Baker Hughes and BJ Services have been working together on projects for some time now and they know each other well. No one can predict with any certainty how oil and gas operations will proceed next year. With the continued expansion of the liquefied natural gas (LNG) sector, the outlook for a quick pick up in shale gas drilling looks dim. Also in just about all areas of operations, a go slow attitude persists in the face of static demand for crude oil. Companies will drill to hold production but not much more than that. After 2010, the outlook is slightly improved but far from famous. Too many unresolved financial questions remain, particularly in the U.S.A. All of this points to earnings for both oil and service companies to remain well below the big numbers of 2008 for quite some time.
