* Fourth-quarter profit falls 36 percent
* Plans to cut capex by 30 percent for 2013
* Adjusted Q4 EPS 62 cents vs 61 cents expected
* Shares up 0.5 pct
By Braden Reddall
Jan 23 A glut of North American natural gas is
weighing heavily on both drilling activity and pricing power for
Baker Hughes Inc, the world's third-largest oilfield
services company, which posted a 36 percent drop in quarterly
profit on Wednesday.
After service companies spent heavily to gear up for a boom,
a surge in natural gas output led to a drop in drilling activity
that left North America with 25 percent too much pressure
pumping equipment - used in hydraulic fracturing to extract oil
and gas from shale rock.
Baker Hughes Chief Executive Martin Craighead said the
downward drag of pressure pumping masked strong performances in
other parts of the business.
"But these headwinds on pricing, it's not over yet and it's
going to be a drag on the overall North America margin for all
of '13, easily," he told analysts on a conference call.
Larger rival Halliburton Co will reveal how it fared
when it posts fourth-quarter results on Friday. Sector leader
Schlumberger managed to offset the U.S. onshore decline
with a strong performance in the Gulf of Mexico.
Craighead said the surplus capacity translated into 125
pressure pumping fleets across the North American sector that
are now idle or underutilized, and that another 300 drilling
rigs would need to go back to work eliminate that overhang.
Yet Baker Hughes, which compiles a benchmark rig count for
the industry, predicted a rise in the U.S. drilling rig count to
1,880 by the end of 2013 - up only 125 from current levels.
Craighead said rig efficiency would improve, with the number
of wells sunk per rig growing again this year after a rise in
2012. This has been driven by better understanding of the
reservoirs as well as newer drilling equipment.
International rig activity would rise by 7 percent in 2013,
even if the addition of Iraq's rigs to the mix was excluded,
Baker Hughes said.
When asked about first-quarter earnings, Chief Financial
Officer Peter Ragauss said the "big question mark" was North
American pressure pumping and whether utilization rates rose.
"And I'm not going to call that for you," he added.
The company plans to cut capital expenditure by 30 percent
for 2013 from its 2012 level of $2.87 billion.
The share of capital devoted to North America would drop to
about a third this year, down from half in 2012.
Scott Gruber, analyst at Bernstein Research, believes North
American activity will keep climbing out of its trough, while
more work offshore and in the Middle East would boost
"These trends should propel renewed earnings growth during
2013," Gruber said in a note to investors. "As a result, we
remain positive on Baker Hughes, although Schlumberger and
Halliburton remain preferred, given greater confidence in
Baker has suffered most from its U.S. land-drilling
exposure. Its shares are down 9 percent in the past year,
compared with increases of about 5 percent for its two bigger
The number of U.S. rigs drilling for oil and natural gas
liquids fell to a 10-month low, at 1,316, in the week ended Jan.
18, while the gas-directed count hovers just above the
13-1/2-year low of 413 posted 10 weeks ago, Baker Hughes data
Baker said its net income fell to $211 million, or 48 cents
per share, for the fourth quarter, from $331 million, or 76
cents per share, a year earlier. Revenue fell slightly to $5.22
billion, with nearly half of that coming from North America.
The Houston-based company warned last month that
fourth-quarter margins and revenue would be below its
expectations. The adjusted fourth-quarter profit
of 62 cents per share was a penny ahead of the lowered average
Shares of Baker Hughes rose 21 cents to $45.06 in
late-morning trading on the New York Stock Exchange on