Oil Service Giant Baker Hughes Losses Widen Hit by Russian Charges and Inflation

Energy services company Baker Hughes reported weaker than expected second quarter earnings on Wednesday before the market open. The cited inflation and its suspension of operations in Russia as reasons earnings were negatively impacted. Baker Hughes stock plunged to 25.32 −2.90 (-10.29%) on the result. Peers Halliburton reported Tuesday crushing estimates and predicted years of growth in demand for drilling and Schlumberger reports Friday.

Baker Hughes Drill Bit

Baker Hughes: $BKR Reported Before Open Wednesday

Baker Hughes (BKR) Q2 2022 Earnings and Revenues Miss Estimates:

  • EPS: $0.11 (est $0.22) Diff: -$0.11 (-50%)
  • Revenue: $5.05B (est $5.34B) Diff: -$293M (-5%), a 2% decrease year-over-year

Baker Hughes posted a net loss of $839 million, or 84 cents per share, in the three months ended June 30, compared to a loss of $68 million, or 8 cents per share, a year ago. BKR also reported a non-operating loss of $426 million related to its oilfield services business in Russia, which it has classified as “held for sale” at the end of the second quarter.

Its adjusted net income rose to $114 million, or 11 cents per share, from $83 million, or 10 cents per share. Analysts had expected earnings of 22 cents per share, according to IBES data from Refinitiv.

The Ukraine invasion by Russia and the global supply crunch has hit customers but also the cost of materials for BKR. Baker Hughes has been negatively impacted by a $365 million charge from its Russian operations and supply chain inflation.

BKR shares fell plunged to 25.32 −2.90 (-10.29%) in premarket trading. They are up 13% since the beginning of the year.

Western sanctions on Russia’s energy industry hit supplies. which disrupted operations and led to higher costs for chemicals. Its digital solutions unit was also again negatively impacted by supply chain problems related to semiconductors, boards and displays.

Demand Destruction Fear

“The demand outlook for the next 12 to 18 months is deteriorating, as inflation erodes consumer purchasing power and central banks aggressively raise interest rates to combat inflation,” Baker Hughes Chief Executive Officer Lorenzo Simonelli said in a statement.

Oil prices have surged this year, gaining around 53% from the second quarter compared with last year as Western sanctions on Russia’s energy industry hit supplies. The worry is prolonged prices above $100 a barrel and moves by central banks to curb inflation have stoked concerns of demand destruction and an economic slowdown.

Meanwhile over at rival Halliburton:

The Energy Transition

Looking Back: Worth a read of how wrong they all got it – from Q3 2021

The CEO of Baker Hughes outlined in 2021 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.

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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