Global Supply Chain Contagion Hits Oil Service Firm Baker Hughes Earnings

Energy services company Baker Hughes,reported weaker than expected third quarter earnings on Wednesday before the market open. Oilfield services were negatively impacted by Hurricane Ida and supply chain problems. $BKR peers Halliburton reported Monday and Schlumberger reports Friday.

Energy services company Baker Hughes,reported weaker than expected third quarter earnings on Wednesday before the market open. Oilfield services were negatively impacted by Hurricane Ida and supply chain problems. $BKR peers Halliburton reported Monday and Schlumberger reports Friday.

Baker Hughes Drill Bit

Baker Hughes: $BKR Reported Before Open Wednesday

$0.16 Misses Exp $0.21 EPS AND $5.09 Misses $5.32 Billion Revenue Forecast

Earnings

Baker Hughes reported Q3 earnings with adjusted net income of $141 million, or 16 cents per share, in the third quarter, missing forecasts for 21 cents per share, according to Refinitiv IBES data. Revenues of $5.093 billion also fell short of expectations of $5.321 billion.

Net income attributable to the company was $8 million, marking Baker Hughes’ first quarterly profit since the fourth quarter of 2020.

The global supply crunch has hit customers but also the cost of meterials for BKR. Baker Hughes and rival Halliburton have been negatively impacted by Hurricane Ida, which disrupted operations on the U.S. Gulf Coast and Gulf of Mexico in August and September Higher costs for chemicals, which have not yet been fully passed onto customers, also weighed on earnings.Its digital solutions unit was also negatively impacted by supply chain problems related to semiconductors, boards and displays, executives said on the call.

“As we look ahead to the rest of 2021 and into 2022, we see continued signs of global economic recovery that should drive further demand growth for oil and natural gas,” Baker Hughes Chief Executive Officer Lorenzo Simonelli said.

On a call with investors, Simonelli acknowledged Baker Hughes experienced “some mixed results across our product companies.” Its oilfield services unit was negatively impacted by Hurricane Ida and supply chain problems, which costs the company roughly $30 million to $40 million during the quarter.

 

Market Reaction $24.27 ▼ $1.08 (- 4.26%) Close October 21, 2021

Highlights

  • Orders of $5.4 billion for the quarter, up 6% sequentially and up 5% year-over-year.
  • Revenue of $5.1 billion for the quarter, down 1% sequentially and up 1% year-over-year.
  • GAAP operating income of $378 million for the quarter, up 95% sequentially and favorable year-over-year.
  • Adjusted operating income (a non-GAAP measure) of $402 million for the quarter was up 21% sequentially and up 72% year-over-year.
  • Adjusted EBITDA* (a non-GAAP measure) of $664 million for the quarter was up 9% sequentially and up 21% year-over-year.
  • GAAP earnings per share of $0.01 for the quarter which included $0.15 per share of adjusting items.
  • Adjusted earnings per share (a non-GAAP measure) was $0.16.
  • Cash flows generated from operating activities were $416 million for the quarter. Free cash flow (a non-GAAP measure) for the quarter was $305 million.

The Energy Transition in 2021

The CEO of Baker Hughes outlined key points related to the energy transition amid deepening concern about rising gas prices and the knock-on effects this could have in the months ahead.

In an interview with CNBC’s Dan Murphy at the Gastech conference in Dubai, United Arab Emirates earlier this week, Lorenzo Simonelli was asked whether soaring gas prices were likely to be transitory or if he expected wider implications for consumers, markets and the broader economy.

“I think a lot of people are seeing what’s happening in Europe and it’s bringing to light the important discussion around the energy transition, and the importance that we have around gas as well,” he said. It was still early to see if prices would remain high or if this rise was transitory, he said.

European Energy Crisis

Benchmark European gas prices have jumped over 250% since the start of the year, Reuters reported this week. The reasons for the spike are varied.

The International Energy Agency said on Tuesday that surging European gas prices had “been driven by a combination of a strong recovery in demand and tighter-than-expected supply, as well as several weather-related factors.” “These include a particularly cold and long heating season in Europe last winter, and lower-than-usual availability of wind energy in recent weeks,” it said.

IEA Executive Director Fatih Birol said given that the reasons behind the price rise were multifaceted, it would be “inaccurate and misleading to lay the responsibility at the door of the clean energy transition.”

OPEC Secretary General Mohammed Barkindo told CNBC on Tuesday that soaring gas prices were the cost of the attempted shift to renewable energy sources. “I have talked about a new premium that is emerging in the energy markets that I term the transition premium,” Barkindo said.

“We need energy security,” Baker Hughes’ Simonelli said. “And look, there’s plenty of gas around the world, there’s plenty of energy available,” he added. “It’s a question of bringing it to the market.”

On the energy transition Simonelli sought to highlight a number of issues he felt were important.

“We think there’s three hard truths,” he said.

  • “Firstly, we’ve got to work together, accelerate the move towards decarbonization and also eliminating emissions.”
  • “Secondly, hydrocarbons are here to stay … and natural gas, in fact, is a key element.
  • “thirdly, we’ve got to do it together, collaborate and actually adopt the new technologies that are available.”

The current crisis surrounding the price of gas has reinforced its continuing significance, even as major economies such as the U.K., European Union and U.S. outline plans to move away from fossil fuels in the years ahead. Indeed, in its statement issued Tuesday, the IEA said gas remained “an important tool for balancing electricity markets in many regions today.”

Simonelli was asked about the role gas would play in the race to net zero.

“You just have to look at Europe and look at the United States with regards to the way they’ve been successful in the last decades to actually reduce their CO2 emissions,” he said. “You’ve seen a shift from coal to natural gas and that’s going to continue as you look at it from an emissions profile,” he said. “So, you can reduce the footprint of natural gas from an emissions standpoint. It is already one of the most efficient fuels and we think it’s here to stay.”

General Electric Demerger

On June 26, $GE announced it will divest its 62.5 percent stake in Baker Hughes in the next two or three years in a bid to simplify its structure and boost shareholder returns. GE acquired the Baker Hughes in July 2017, creating the second largest oilfield services provider by revenue.

Baker Hughes today announced will keep technology, capabilities and infrastructure obtained through the merger despite its breakup with GE.

“There are agreements in place to ensure there is a seamless separation. We’ll work with GE as they evaluate the timing and structure,” Simonelli said..

Source: BKR

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