* Cites weakness in pressure pumping business
* Sees Q1 N America pretax oper profit margin at 13.2 pct to
* Shares down 4.8 pct
March 21 Baker Hughes Inc expects
first-quarter profit margins to fall sharply as the disruption
of North American clients bailing out from natural gas fields
proves rougher than expected for the third-largest oilfield
Shares of Baker Hughes fell 4.8 percent. The stock, down 30
percent in the last year, touched its lowest point in about a
year and a half at $45.50 on the New York Stock Exchange. The
Dow Jones U.S. Oil Equipment and Services Index was
down 1.5 percent.
Costs are rising industry-wide and oilfield services
companies are struggling to move their rigs swiftly to fields
producing liquids, where activity is increasing in response to
high oil prices amid a U.S. natural gas glut.
While there is ample services demand in oil basins in Texas
and North Dakota, getting equipment and skilled people to those
areas has caused a near-term squeeze of Baker Hughes profits.
After disappointing fourth-quarter numbers, Baker Hughes had
characterized these transition problems as largely internal
ones, and investors have tended to agree. Shares of larger rival
Halliburton Co were down only 1.4 percent on Wednesday.
Simmons & Co analyst Bill Herbert said in a note to clients
on Wednesday that most of Baker's burden was unique to the
company. "Thus, if (Halliburton) gets slammed today, buy it."
Natural gas prices touched a decade-low of $2.22 per
million British thermal units in January, and are only 10 cents
above that now, which has forced companies like Chesapeake
Energy Corp to cut back on gas drilling.
Baker Hughes, having previously said margins may even
improve slightly on the fourth quarter, forecast on Wednesday a
first-quarter North America operating margin of 13.2 percent to
14.2 percent, down from 18.7 percent in the fourth quarter.
Raymond James analysts said the forecast was 3 percentage
points below their expectation.
The company said its pressure pumping business -- which does
hydraulic fracturing to tap shale fields -- is 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 Baker 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
Halliburton warned in January that its response to the U.S.
natural gas price slump would cause some near-term disruptions.
Baker Hughes and Halliburton have relatively more exposure
to the United States than industry leader Schlumberger,
which saw its shares fall 1.6 percent.
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.
Global Hunter said Baker's seasonally strong Q1 operations
in Canada were also experiencing weakness due to lower
gas-directed pressure pumping activity and an early spring
For operations outside North America, the company expects
operating profit margin at 12.2 percent to 13.2 percent, down
from 15.6 percent in the fourth quarter.
This represents a big setback from the first quarter a year
ago, when its overall oilfield margins were 16 percent.