US oil service company Baker Hughes warns on fourth-quarter earnings
Houston (Platts)--18Dec2012/257 pm EST/1957 GMT
US-based Baker Hughes on Tuesday became the second large-capital oil
service company in as many weeks to issue a warning of lower fourth-quarter
earnings because of weaker North American and international activity.
Baker Hughes' North America "operating profit before tax margin" is
expected to be 8.5%-9.5% for the fourth quarter, compared with 11.7% in the
third quarter, it said in a statement Tuesday.
The company said its international operating profit before tax margin is
expected to be similar to the 12% reported in the third quarter, excluding
the impact of bad debts recognized in Latin America and Europe.
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Fellow oil service company Schlumberger less than a week ago warned in a
statement that its Q4 earnings are estimated to be impacted by 5-7 cents/share
because of the weak activity in the US and Canada and delays to contracts in
Europe, CIS and Africa.
In North America, Baker Hughes cited "weaker than anticipated onshore
activity and further price erosion within pressure pumping operations."
Internationally, "operations are being adversely impacted by several
factors, including weaker than anticipated rig count activity in Brazil and
Colombia, activity delays in the North Sea, and continued operational delays
in Iraq," Baker Hughes said in the statement.
Baker Hughes spokeswoman Pam Easton would not comment on specific issues
in Brazil, Columbia and Iraq, pointing to an upcoming fourth-quarter earnings
conference call scheduled for January 23 for more details.
Delays in Iraq are mostly due to "startup issues" and a challenging
logistics environment, Barclays analyst Harry Mateer said, noting an
abundance of new drilling in Iraq.
"I attribute the Brazil weakness to less exploratory drilling and a
shift in business mix away from workover and well site testing," he said.
High-growth producers in Brazil are reining in spending, Mateer said.
In Columbia, permits have been delayed, according to a Credit Suisse
analyst note released Tuesday.
Baker Hughes' weaker guidance is not surprising on the back of
Schlumberger release last week, Mateer said Tuesday in a note.
"Similar to Schlumberger, although the preannouncement is disappointing,
we believe the [North American] market is going through a sloppy bottoming
process (which has been magnified by the drop in year-end spending),"
International Strategy and Investment Group analyst Judson Bailey said
Tuesday in a note.
Baker Hughes shares in midday trading were valued at $42.37, up
The North American oil services market should see a modest recovery in
2013, Bailey said in a previous ISI note.
Exploration and production companies were expected to slow operations in
North America on depleted 2012 budgets, sources have said. New technology and
efficient drilling has allowed for the completion of drilling programs ahead
of schedule, analysts have said.
There has been a meaningful drop in the [US] rig count in October and
November, according to the most recent note.
For the week ending December 14, the US oil rig count was 1,381, down 27
from the week ending September 28, when the rig count was 1,408, according to
Baker Hughes data. During the same time period, the US natural gas rig count
was down 19 rigs to 416.
This year, dramatically weaker natural gas prices caused a decline in
drilling, and an oversupply of pressure pumping capacity has resulted.
Weaker drilling activity in Brazil and Columbia and activity delays were
known as issues for Baker Hughes, while delays in the North Sea are "new,
but [Schlumberger] had similar issues," Tudor Pickering analysts said Tuesday
in a note.
The Europe/CIS/Africa weakness is driven partially by Norway and
seasonality in Russia, Bailey said in the Friday note.
Norway's crude oil production fell 14% to 1.443 million b/d in November,
hit by unforeseen outages at several fields, according to a preliminary
estimate issued Friday by the Norwegian Petroleum Directorate.
"Many of the international issues infecting [the fourth quarter of 2012]
are actually unresolved [third-quarter] issues," CLSA analyst David S. Havens
said in a Tuesday note.
"Internationally, the collective rig count in Brazil, Colombia and
Norway was down 17% compared to the last quarter, and these are all
meaningful markets for Baker Hughes," Baker Hughes said in a third-quarter
earnings statement. At the time, the company expected international activity
in the fourth quarter to rebound, according to the statement.
--Bridget Hunsucker, email@example.com
--Edited by Jason Lindquist, firstname.lastname@example.org