Baker Hughes says profit slips, cites Canada

HOUSTON (Reuters) - Oilfield services company Baker Hughes Inc. (BHI.N) reported a 3 percent decline in second-quarter profit on Friday as weakness in Canada offset strength in international markets.

Weak natural gas prices and an early thaw in the first half of the year prompted energy companies to sharply curtail their exploration in Canada, which in turn cut into oilfield service revenues.

For example, the number of rigs actively looking for oil in Canada fell 51 percent in the second quarter from year-earlier levels, Baker Hughes said.

The company's quarterly profit fell to $349.6 million, or $1.09 per diluted share, from $359.8 million, or $1.07 per share, a year earlier.

Excluding tax-related charges, earnings were $1.12 per share, beating Wall Street forecasts by 1 cent, according to Reuters Estimates.

Sales rose 15 percent to $2.54 billion, ahead of forecasts of $2.49 billion.

On July 13, Houston-based Baker Hughes warned that "significant deterioration" of activity and profitability in Canada would hurt second-quarter profit.

"It's sort of neutral because they already preannounced," Calyon Securities analyst Mark Urness said. "They also said they were not satisfied with incremental profit growth, which means they aren't executing the way they should, which is what I'm hearing from shareholders."

At the time of the profit warning, Baker Hughes said the weakness was particularly acute in its drilling and evaluation segment in Canada, but international operations remained on target.

The company has adjusted staffing levels and relocated some staff in response, it said.

"In North America, we expect drilling to remain at or near current levels but there are a number of factors that could drive short-term volatility," Chief Executive Chad Deaton said in a statement. He added that any correction in drilling activity because of economic or weather events would help rebalance the market.

Baker Hughes said it still expected 2007 revenue outside North America to rise 19 percent to 21 percent. It forecast capital spending of $1.1 billion to $1.2 billion for the year.

Baker Hughes rivals, including market leader Schlumberger Ltd. (SLB.N) and Halliburton Co. (HAL.N), were able to offset weakness in North American with growth in international markets.

Baker Hughes shares fell 2 percent on Thursday to close at $81.26 on the New York Stock Exchange.

The stock was up nearly 9 percent this year, a fraction of the 40 percent gain for the Philadelphia index of oil service companies .OSX.

(Additional reporting by Nick Zieminski)