WRAPUP 2-US hits Baker Hughes, Weatherford; outlook brighter

Tue Apr 24, 2012 12:01pm EDT

* Baker Hughes Q1 EPS 86 cents vs est. 80 cents

* Weatherford adj EPS 25 cents vs 28 cents expected

* Baker sees internal problems easing

* Weatherford expects N.America growth in 2012

* Baker shares up 7.2 pct, Weatherford up 3.9 pct

By Matt Daily and Braden Reddall

April 24 (Reuters) - The much-discussed drag on oilfield service profits from North America's shift to oil drilling from natural gas will start to ease later in 2012, Baker Hughes Inc and Weatherford International said on Tuesday.

Halliburton, the North American market leader, said last week that pricing for services for oil and gas companies drilling in shale fields was under pressure, even if Halliburton was better off than others.

Baker Hughes' slightly lower profits beat expectations, while Weatherford fell short, yet the upbeat tone of executives helped lift shares of both companies in trading on Tuesday. Baker was up 7.2 percent, while Weatherford rose 3.9 percent.

Oilfield services shares were hit hard by warnings last month from Baker Hughes and Schlumberger about the volatile North American market, which had led investors to overestimate the impact of the gas-to-oil drilling transition.

"(Baker Hughes) expects to see 'significant benefits' from increased fleet utilization, supply chain rationalization and improved sourcing of raw materials in the second half of the year," Dahlman Rose analyst James Crandell wrote in a note to investors.

Energy companies have rushed to tap into shale fields in recent years, using hydraulic fracturing technology, or "fracking," to crack open the brittle rock and draw out oil and gas.

That has created a gas glut that pushed prices for the fuel to their lowest levels in a decade, leading to a buildup in the equipment used in fracking, which has eaten away at profit margins.

Martin Craighead, chief executive of Baker Hughes, said the overall market would experience pricing pressure throughout 2012, but he believed Baker Hughes would resolve its own internal supply chain problems this quarter.

It is cutting spending on fracking equipment sharply, with third-quarter capacity additions expected to be half the level of the second quarter, and overall 2012 capital expenditure will now be at least $400 million lower than previously expected at 2.7 billion to 2.9 billion.

Baker Hughes posted a slight dip in first-quarter profits to $379 million, or 86 cents per share, from the year-ago level. The figures topped analysts forecasts for profit of 80 cents a share, according to Thomson Reuters I/B/E/S.

Baker, the third-largest oil field services company behind Halliburton and global leader Schlumberger, also benefited from growing activity outside North America as high oil prices triggered new demand from oil companies.

"While in North America margins were in the range provided, our international margins were modestly higher due to stronger-than-expected activity in Europe, Africa, Russia and the Caspian region," Chief Financial Officer Peter Ragauss told a conference call.

Weatherford's quarterly profit more than tripled to $123 million, or 16 cents per share, helped by higher revenue in North America. Excluding an after-tax loss, profit was 25 cents a share, short of the average estimate of 28 cents. North American margins fell 2 percentage points from the previous quarter.

But CEO Bernard Duroc-Danner said the mainly oil-based market of Canada would have a good year, and that U.S. oil basins where Weatherford has a strong presence would lead to higher revenues and operating profits in the region.

"We remain constructive on North America, both top line and margins. We know this is a minority view," Duroc-Danner said on a conference call. "It reflects our specific circumstances."

The No. 4 oilfield services company expects diluted earnings between 24 and 26 cents per share before excluded items for the second quarter, just shy of the 27 cents analysts had forecast.

Weatherford shares reversed an early loss to rise 3.9 percent to $14.22 in late morning trading. Shares in Baker Hughes jumped 7.2 percent to $44.02 on the New York Stock Exchange.

Prior to Tuesday, Baker Hughes stock had lost 16 percent since the start of the year, compared with a 6 percent drop for Weatherford, a 5 percent decline for Halliburton, and a 4 percent gain for Schlumberger.

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