U.S. hits Baker Hughes, Weatherford; outlook brighter

Tue Apr 24, 2012 12:04pm EDT
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By Matt Daily and Braden Reddall

(Reuters) - The much-discussed drag on oilfield service profits from North America's shift to oil drilling from natural gas will start to ease later in 2012, Baker Hughes Inc (BHI.N: Quote) and Weatherford International (WFT.N: Quote) WFT.S said on Tuesday.

Halliburton (HAL.N: Quote), the North American market leader, said last week that pricing for services for oil and gas companies drilling in shale fields was under pressure, even if Halliburton was better off than others.

Baker Hughes' slightly lower profits beat expectations, while Weatherford fell short, yet the upbeat tone of executives helped lift shares of both companies in trading on Tuesday. Baker was up 7.2 percent, while Weatherford rose 3.9 percent.

Oilfield services shares were hit hard by warnings last month from Baker Hughes and Schlumberger (SLB.N: Quote) about the volatile North American market, which had led investors to overestimate the impact of the gas-to-oil drilling transition.

"(Baker Hughes) expects to see 'significant benefits' from increased fleet utilization, supply chain rationalization and improved sourcing of raw materials in the second half of the year," Dahlman Rose analyst James Crandell wrote in a note to investors.

Energy companies have rushed to tap into shale fields in recent years, using hydraulic fracturing technology, or "fracking," to crack open the brittle rock and draw out oil and gas.

That has created a gas glut that pushed prices for the fuel to their lowest levels in a decade, leading to a buildup in the equipment used in fracking, which has eaten away at profit margins.

Martin Craighead, chief executive of Baker Hughes, said the overall market would experience pricing pressure throughout 2012, but he believed Baker Hughes would resolve its own internal supply chain problems this quarter.   Continued...