Since the beginning of the year, the best performing oil field services stock has been Baker Hughes Inc. (NYSE:BHI). Shares are up about 25%, compared with a 10% rise at Schlumberger Ltd. (SLB), about a 4% rise at Halliburton Co. (HAL), and essentially flat performance at both National Oilwell Varco, Inc. (NOV) and Weatherford International, Ltd. (WFT)
Baker Hughes reported first quarter earnings, including EPS of $0.41 on revenues of $2.54 billion. For the same earnings period last year, Baker Hughes reported EPS of $0.63 on revenues of $2.69 billion. Analysts were expecting EPS of $0.38 and revenues of $2.46 billion. BHI earnings in 2009 included a charge of -$0.18/share, so Baker Hudges earnigns per share was really about half what it was a year ago.
The company’s results do not include operations for BJ Services. Baker Hughes completed its $6.6 billion merger with BJ on April 28th. For the first quarter of 2010 BJ said it had revenues of about $1.1 billion and pre-tax profit of approximately $59 million, excluding $25 million in one-time items.
Baker Hughes earnings did not offer new guidance, but the company’s president/chairman/CEO did note that it expects margins to increase during the rest of the year as customers increase spending.
Since the disaster in the Gulf of Mexico some of the enthusiasm for this sector has disappeared. Halliburton, which had a contract for cement work on the Macondo well, has seen its shares lose about 6% since April 20th.
There should be no question that the explosion and sinking of the Deepwater Horizon will affect offshore drilling and the regulations governing that drilling. But that’s a far different thing from saying that drilling in the Gulf will cease. That will not happen.
New regulations will certainly impose higher costs on every company involved in drilling offshore. And although none of the services companies has said as much, each must right now be reviewing its practices and procedures for offshore work. It shouldn’t be too hard for company managers to anticipate what some of the new regulations will look like and begin now to strengthen their own practices.
Both Halliburton and Schlumberger expected business to improve for the rest of the year, especially internationally. Increases in North America depends heavily on the price of natural gas, and gas prices have remained stubbornly close to $4/thousand cubic feet for a long time now.
For Baker Hughes, new contracts for pumping equipment in the Canadian oil sands will help boost revenues for the rest of 2010. The company also has a contract to supply 162 of the pumps in Iraq.
Profits for Baker Hughes and its competitors are expected to come increasingly from Iraq. If the country remains relatively stable and drilling can start as scheduled and proceed safely, then profits for all the services companies could get healthier.
For today though, Baker Hughes shares are down nearly 5% on about average volume. Its merger with BJ Services should improve its presence internationally and help the company to better results for the rest of this year.
