March 21, 2012 / 10:46 AM / 6 years ago

UPDATE 4-Baker Hughes sees Q1 hit on customers' shift to oil

* Cites weakness in pressure pumping business

* Sees Q1 N America pretax oper profit margin at 13.2 pct to 14.2 pct

* Shares down 4.8 pct

March 21 (Reuters) - 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 services company.

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:


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 break-up.

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.

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