Baker Hughes Encouraged but Not Convinced with Permitting Activity in U.S. Gulf of Mexico
Baker Hughes Incorporated today announced net income attributable to Baker Hughes for the first quarter 2011 of $381 million or $0.87 per diluted share compared to $129 million or $0.41 per diluted share for the first quarter 2010 and $335 million or $0.77 per diluted share for the fourth quarter 2010.
Revenue for the first quarter 2011 was $4.53 billion, up 78% compared to $2.54 billion for the first quarter 2010 and up 2% compared to $4.42 billion for the fourth quarter 2010.
Results for the first quarter 2010 do not include the results of BJ Services, acquired at the end of April 2010.
Chad C. Deaton, Baker Hughes chairman and chief executive officer, said, “International margins continued to improve in the first quarter, despite weather and geopolitical disruptions, as we made steady progress towards our goal of exiting 2011 with international operating margins in the mid-teens. The foundation of our improvement plan has been managing costs and improving efficiency, which have driven the increase in profitability we have seen to date. As we move towards the second half of 2011, activity growth becomes a more important driver of future improvement.
“Geopolitical supply disruptions have focused attention on the limits of spare oil production capacity and have driven oil prices higher. High oil prices have spurred both international oil companies and national oil companies to accelerate their spending plans. Assuming oil prices do not increase to levels high enough to destroy demand, we expect oil-driven spending growth to be sustained for multiple years. Recent announcements by the Kingdom of Saudi Arabia and Abu Dhabi regarding increased rig activity in the Middle East, and steady increases in spending by Petrobras and other companies to develop fields offshore Brazil give us confidence that the volume growth supporting our margin plans will occur.
“The impact of higher oil prices has not been isolated to the international markets. In North America, on land, overall spending levels have increased as incremental spending on oil and liquids-rich natural gas plays has more than offset weakness in dry gas plays. The rig count in Canada is already dominated by oil-directed drilling and as of last week, for the first time since 1995, the US has more rigs drilling for oil than natural gas. Service intensity in the unconventional shales continues to increase as we drill longer horizontal wells requiring more frac stages and complex completions.
“Our pressure pumping is sold out in North America. We expect to accelerate the deployment of new hydraulic fracturing fleets in the second half of 2011; however, we do not expect that supply will match higher demand for fracturing this year. Although weather improved in March, utilization of equipment was high and we were unable to catch up on work we missed due to colder weather earlier in the quarter.
“Offshore markets will benefit from the resumption of deepwater activity in the Gulf of Mexico. We are encouraged by the recent permitting activity. However, we also recognize that the ten deepwater wells recently permitted to be drilled will only be a fraction of the activity levels we saw before the drilling moratorium was announced. This level of activity is insufficient to offset the 380,000 barrel per day or 23% drop in Gulf of Mexico oil production forecast by the EIA for 2012 compared to 2010. We have continued to invest in our training, safety, and competency assurance programs during the last year, and we are well positioned in the Gulf of Mexico, with our suite of advanced technology and services and experienced personnel, for a resumption of deepwater drilling activity.
“We expect demand for hydrocarbons to continue to increase as the global economy grows. Following the tragic earthquake and tsunami in Japan, we expect oil and LNG to experience higher incremental demand, supporting high oil prices. With shrinking spare capacity, we believe that exploration, development and production spending will increase, raising our confidence that the second half of 2011 will set the stage for a strong 2012.”
Debt decreased by $44 million to $3.84 billion and cash and short-term investments decreased by $311 million to $1.40 billion compared to the fourth quarter 2010. Capital expenditures were $429 million, depreciation and amortization expense was $315 million, and dividend payments were $65 million in the first quarter 2011.
Earnings before interest, taxes, depreciation and amortization or “EBITDA” per diluted share for the first quarter 2011 was $2.19, up $0.86 or 65% compared to $1.33 for the first quarter 2010 and up $0.01 compared to $2.18 for the fourth quarter 2010.