• Sunday, July 14, 2024
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BusinessDay

Baker Hughes warns of deepening oil industry slump

Baker Hughes sign

Baker Hughes, the US oil services group that has agreed a $26bn takeover bid from its rival Halliburton, reported a $1.97bn loss for 2015 and forecast a continued decline in the industry throughout this year.

The number of rigs drilling oil and gas wells worldwide, which has fallen 46 per cent since the fourth quarter of 2014, could drop a further 30 per cent in 2016 if crude prices stay around current levels, the company predicted.

The results highlight the pressures on the industry that Halliburton and Baker Hughes say strengthen the case for their deal. The takeover was agreed in November 2014 but has faced difficulties with regulators over concerns about competition, and the two companies said last year they were aiming to complete the sale in April.

The deal would bring together the world’s second- and third-largest oil services groups by market capitalisation.

Martin Craighead, chief executive of Baker Hughes, said the oil and gas production companies that were its customers were facing “more acute” challenges of maximising production, cutting costs and protecting cash flows. As a result, he said, its role in the industry was “more relevant today than it has ever been before”.

However, the downturn in the industry has hit both the usage of Baker Hughes’ services and the prices it can charge.

Revenues were down 36 per cent for the year at $15.7bn, and for the fourth quarter were down 49 per cent from the equivalent period in 2014 at $3.39bn.

Like Halliburton, Baker Hughes has been hit hardest in North America, where its revenues halved last year to $6bn.

Revenues in the Middle East and Asia Pacific region were more robust, dropping 23 per cent to $3.4bn.

Most of the net loss was the result of a $1.99bn pre-tax charge in 2015 for write-down’s in asset values, redundancy costs, site closures and contract terminations.

Excluding those charges and other items depicted as one-offs, the loss was much smaller at just $209m for the year, compared with a $1.8bn profit in 2014.

Even without those charges, however, Baker Hughes still reported a loss of $457m in North America; a significantly worse result than for Halliburton, which made a $458m profit even though its margins were greatly reduced.

Mr Craighead said the company had been losing market share in North America for pressure pumping, used in the hydraulic fracturing of shale oil and gas wells, because it had been striving “to maintain cash flow positive operations despite continuing deteriorating market conditions”.

He added that the company was “fully dedicated to closing the merger [with Halliburton] as early as possible”, and was both working with regulators to secure approval and developing plans for integrating the two businesses.

Baker Hughes spent $214m on the planned merger last year, it said, compared with $308m reported by Halliburton.