Baker Hughes has lowered its outlook for North American oil producer spending due to reduced drilling activity, joining other oilfield service companies in signaling a downturn in the region. Despite this, the company has raised its full-year revenue and profit forecasts, thanks to strong international growth and demand for gas equipment.
Domestic Challenges and International Opportunities
On Friday, Baker Hughes revised its expectations for North American producer spending, predicting a decline in the mid-single digits year-over-year, down from its previous estimate of low- to mid-single digits. This adjustment reflects the tepid demand and wave of mergers that have constrained producer budgets in North America.
However, the company’s international and offshore markets are thriving. CEO Lorenzo Simonelli, during an earnings call, emphasized that Baker Hughes’ North American revenue will outperform the market despite the challenges. The company’s shares rose 4% to $36.99 after beating analysts’ profit estimates for the second quarter.
“The softness in North America is real, but our global outlook remains robust,” Simonelli stated. He highlighted that international markets are experiencing significant growth, particularly in regions such as Latin America, West Africa, and the Middle East. These areas are driving demand for oilfield services and equipment, which Baker Hughes is well-positioned to supply.
Financial Projections and Market Performance
Baker Hughes has increased the midpoint range of its full-year revenue expectations by nearly 2%, projecting between $27.60 billion and $28.40 billion. Additionally, it has raised its estimate for adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) by 5%, now expecting between $4.40 billion and $4.65 billion.
The company also reaffirmed its expectations for international spending growth, predicting high single-digit increases over last year. Strong oilfield demand is anticipated from regions such as Latin America, West Africa, and the Middle East, continuing beyond 2024. This optimistic outlook comes as top service company SLB also reported lower-than-expected North American growth and Halliburton forecasted a 6% to 8% decline in full-year revenues from the region due to decreased activity.
Baker Hughes is not alone in facing these North American challenges. SLB, another leading oilfield service provider, noted last week that North American growth would be lower than anticipated. Halliburton, another major player, also adjusted its forecasts, expecting a 6% to 8% decline in revenues from the region due to reduced drilling activity and budget constraints among producers.
Focus on Gas Technology and LNG Prospects
Baker Hughes is capitalizing on its gas technology sector, securing more orders as customers delay some liquefied natural gas (LNG) projects. Despite a pause in the U.S. approval of applications to export LNG, Simonelli remains confident. “LNG has not gone away and we anticipate it’s going to be coming back again,” he said.
The company’s strategic shift towards international markets and gas technology highlights its adaptability and forward-looking approach amidst regional market fluctuations. As Baker Hughes continues to navigate these challenges, its strong international presence and innovative gas solutions are expected to drive future growth and stability.
The company’s recent success in securing new contracts for its gas technology is a testament to its strategic focus. With customers delaying some LNG projects, Baker Hughes has nonetheless managed to book significant orders, reflecting the enduring demand for its technology and services. Simonelli’s confidence in the LNG sector’s resurgence underscores the company’s commitment to this market segment.
Baker Hughes’ approach includes a robust pipeline of projects and investments aimed at enhancing its technological capabilities. This strategy is designed to meet the growing needs of the international market, particularly in regions with burgeoning energy demands. The company’s ability to leverage its expertise in gas technology is a key factor in its optimistic outlook.
Source: Reuters
