Baker Hughes Inc.: Tapping the Oil Profit Pipeline

Aug. 13, 2008
Oil exploration demand drives second-quarter gains for Baker Hughes.

Don't expect to hear many complaints from executives at oilfield service company Baker Hughes Inc. about the high price of oil. Record oil prices increased demand for more oil exploration worldwide, pushing Baker Hughes' profit up 8.6% to $379.3 million, or $1.23 per share, in the second quarter. Earnings include an after-tax charge of $40.3 million to settle a patent lawsuit with ReedHycalog.

Revenue for the second quarter was $3 billion, up 18% from $2.5 billion recorded in the year-earlier period. Revenue in North America was up 20% over the same period last year, while outside North America revenue for the second quarter increased 17%.

The 2008 IW 50 Best Manufacturer, which provides equipment used in oil exploration such as drill bits and pumps as well as testing services, benefited from increased oil-drilling efforts domestically.

"Activity levels improved in the United States in the quarter, particularly horizontal drilling on land, more than offsetting the seasonal sequential decline in Canada drilling activity," said Chad Deaton, Baker Hughes president and CEO in a July 22 statement. "While the primary driver of increased rig activity in the U.S. compared to a year ago has been oil-directed drilling, we expect that our customers will increase the pace of their natural gas-directed activity in the second half of 2008, resulting in additional opportunities for Baker Hughes."

Baker Hughes Inc.
At A Glance

Baker Hughes Inc.
Houston, Texas
Primary Industry: Machinery
Number of Employees: 35,800
2007 In Review
Revenue: $10.4 billion
Profit Margin: 14.5%
Sales Turnover: 1.06
Inventory Turnover: 4.22
Revenue Growth: 15.5%
Return On Assets: 17.4%
Return On Equity: 28.9%

Deaton expects high oil prices will lead to lower global demand, but says production declines and growing demand in developing markets such as China, India and the Middle East will lead to increased exploration spending. To support future growth, the company expects to spend $1.3 billion in capital, increase infrastructure capacity more than the past six years combined, and invest more than $430 million in technology development, Deaton says. In the second half of 2008, the company plans to increase its workforce by more than 3,000 employees, he added.

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About the Author

Jonathan Katz | Former Managing Editor

Former Managing Editor Jon Katz covered leadership and strategy, tackling subjects such as lean manufacturing leadership, strategy development and deployment, corporate culture, corporate social responsibility, and growth strategies. As well, he provided news and analysis of successful companies in the chemical and energy industries, including oil and gas, renewable and alternative.

Jon worked as an intern for IndustryWeek before serving as a reporter for The Morning Journal and then as an associate editor for Penton Media’s Supply Chain Technology News.

Jon received his bachelor’s degree in Journalism from Kent State University and is a die-hard Cleveland sports fan.

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