Baker Hughes warns of slow Q1 as customers shift to oil

Wed Mar 21, 2012 1:21pm EDT

(Reuters) - Baker Hughes Inc (BHI.N) said it expects pretax operating profit margin to fall sequentially in the first quarter as North American explorers' shift to liquids from natural gas leads to higher costs and lower utilization at the third-largest oilfield services company.

Shares of Baker Hughes were down 4 percent on Wednesday morning. The stock, which has lost 30 percent of its value in the last one year, touched its lowest in about a year and a half at $45.5 on the New York Stock Exchange.

The broader Dow Jones U.S. Oil Equipment and Services Index .DJUSOI was down 2.47 percent.

Industry-wide costs are going up and most oilfield services companies are struggling to swiftly move their rigs to oil and natural gas liquid fields, where activities are increasing.

Natural gas prices touched their decade-low of $2.22 per million British thermal units in January, forcing companies like Chesapeake Energy Corp (CHK.N) to cut back on drilling in dry gas areas.

Baker Hughes forecast first-quarter North America pretax operating profit margin at 13.2 percent to 14.2 percent, compared with 18.7 percent in the fourth quarter.

Raymond James analysts wrote in a note that the forecast was 300 basis points below their expectation.

The company said its pressure pumping business -- which runs hydraulic fracturing used to tap shale fields -- is also seeing lower pricing and raw material shortages. The business squeezed the company's fourth-quarter margins.

"Pressure pumping in North American markets will continue to experience pricing pressures, supply chain and raw material constraints, and execution issues will weigh on North American markets results through the second half of 2012," Global Hunter Securities analysts said in a note.

The brokerage, which downgraded the company to "neutral" from "accumulate", cut Its price target on the stock to $40 from $60.

For a FACTBOX on natgas output cut:

GREATER U.S. EXPOSURE

Baker Hughes and bigger rival Halliburton Co (HAL.N) have more exposure to the United States than industry leader Schlumberger (SLB.N).

In January, Halliburton warned that its response to a deep slump in U.S. natural gas prices would cause near-term disruptions.

New technology has opened up vast new fields for production, creating a glut that may keep gas prices low for years. The boom has also led to logistical challenges and shortages in certain fracking materials such as proppants.

"Its (Baker Hughes) seasonally strong Q1 operations in Canada are also experiencing some weakness due to lower natural gas-directed pressure pumping activity and an early spring break-up," Global Hunter said.

For international operations, the company expects operating profit margin at 12.2 percent to 13.2 percent, down from 15.6 percent in the fourth quarter.

(Reporting by Vaishnavi Bala in Bangalore; Editing by Sriraj Kalluvila and Don Sebastian)