January 23, 2013 / 2:46 PM / 5 years ago

Baker Hughes profit falls on North American drilling slump

(Reuters) - Baker Hughes Inc BHI.N, the world’s third-largest oilfield services provider, reported a 36 percent fall in quarterly profit as both activity and pricing decreased in its main North American market.

Larger rival Halliburton Co (HAL.N) will reveal how it fared in an especially tough quarter for the industry when it posts fourth-quarter results on Friday. Sector leader Schlumberger (SLB.N) managed to offset the U.S. onshore decline with a strong performance in the Gulf of Mexico.

After the service companies spent heavily to gear up for a boom, a unexpected surge in North American natural gas output led to a drop in drilling activity that left the region’s market with 25 percent too much pressure pumping equipment - used in hydraulic fracturing to extract oil and gas from shale rock.

Chief Executive Martin Craighead said this translated into at least 125 pressure pumping fleets across the sector that are now idle or underutilized.

“All else being equal, the U.S. would need at least 300 additional drilling rigs to come back online in order to get those idle fleets fully up and utilized,” Craighead told analysts on a conference call on Wednesday.

But the company, 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.

Rig efficiency would improve, however, with the number of wells sunk per rig growing again this year after a rise in 2012, Craighead said. This has been driven by better understanding of the reservoirs as well as newer equipment.

International drilling activity would improve by 7 percent in 2013, even if the addition of Iraq’s rigs to the mix was excluded, Baker Hughes predicted.

The company plans to cut capital expenditure by 30 percent for 2013 from its 2012 level of $2.87 billion. [ID:nPnDA46648] The share of capital devoted to North America would drop to about a third from half in 2012.

    The number of U.S. rigs drilling for oil and natural gas liquids fell to its lowest in 10 months, at 1,316, in the week ended January 18, while the gas-directed rig count is hovering just above the 13-1/2-year low of 413 posted 10 weeks ago, Baker Hughes data show.

    Net income from continuing operations attributable to Baker Hughes 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 50 percent coming from North America.

    The company warned last month that fourth-quarter margins and revenue would be below its expectations.

    Shares of Houston-based Baker Hughes were 21 cents lower at $44.64 in early trading on the New York Stock Exchange on Wednesday.

    They have risen nearly 8 percent so far this year, while the Thomson Reuters United States Oil Related Services and Equipment Index .TRXFLDUSPOILS has been largely flat.

    Reporting by Braden Reddall in San Francisco, additional reporting by Thyagaraju Adinarayan; Editing by Sriraj Kalluvila and Nick Zieminski

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