Sam Fletcher, Senior Oil & Gas Writer
OGJ Online
Baker Hughes Inc. has one division�Inteq�that must be fixed, and two segments�its oil and gas properties and the Baker Process division�that should be sold. But the rest of the firm holds much promise for the current rebound, said Michael E. Wiley, the new chairman, president, and CEO.
"All that needs to be fixed is fixable," Wiley said Sept. 18 at the annual energy conference in Houston sponsored by Dain Rauscher Wessels Inc.
Former president and chief operating officer of ARCO until its sale to BP, Wiley joined Baker Hughes Inc. in mid-August. He was recruited to succeed Max L. Lukens, who was ousted as chairman early this year.
"I've been on this new job about a month now, so I have a real fresh perspective," Wiley said at the start of the 3-day conference. During his first weeks in the new job, he's been meeting with groups of Baker Hughes employees "to evaluate their talents and to get a more in-depth understanding of the company's strengths."
Inteq, formed from five Baker Hughes divisions in 1993, "has not performed" as expected. "It was a flawed concept initially, and counter-cultured to the rest of the company. It is now essentially a drilling systems and mud company," said Wiley.
Baker Hughes officials late last year reported accounting "misstatements" resulting from "lapses in control" of the Inteq division. In February, the company was forced to restate prior earning results by $31 million on a cumulative after-tax basis. That adjustment did not involve a cash loss, officials said at the time. Most of that adjustment, some $24.2 million after taxes, was related to Inteq's Venezuelan operations.
Lukens and Thomas R. Bates Jr., who headed the company's Inteq, Western Geophysical and Baker Atlas divisions, resigned from Baker Hughes in January.
"Inteq has been a problem for some period of time. We have taken actions to solve that problem," said Wiley. He indicated more action is planned but didn't specify what form it might take.
Wiley said one of his priorities is to develop a long-term business strategy that involves a more interactive approach among Baker Hughes divisions that previously operated "almost autonomously."
He said, "Our customers want a single face for our different divisions."
The Baker Hughes divisions also "need to be more disciplined" to capitalize on opportunities, "especially in pricing," said Wiley.
The firm will "exit some businesses that don't fit," including its Baker Process division, a leader in water processing and separation technologies for the mining, pulp and paper, and wastewater industries. Officials announced plans to sell that division in February and have since carried it as a discontinued operation.
The company may have a buyer for Baker Process by the end of this year, Wiley said, although the sale may not close until 2001.
Baker Hughes also won't take more equity positions on exploration and production properties and would like to sell its present holdings. But it will hold onto those properties if it can't get a good price for them, said Wiley.
Proceeds from those sales could be used to pay down debt and improve the company's financial flexibility to take advantage of possible opportunities, he said.
Meanwhile, the Houston-based firm will focus on the competitive strengths of its other divisions to cash in on the current natural gas-driven rebound in domestic drilling.
Baker Hughes gets two-thirds of its revenue from international markets, which are influenced more by oil prices, however. The recent decline in international drilling bottomed out in mid-1999, said Wiley. "That will be where our growth is next year," he said.
Wiley began his 28-year career with ARCO in 1972 as a drilling engineer and held various positions with the company's oil and gas operations in Alaska, the lower 48 states, and internationally. He also served as chairman and CEO of Vastar Resources Inc., an independent in which ARCO had majority interest. Vastar subsequently was absorbed into BP (OGJ Online, Sept. 18, 2000).
Wiley said his previous work experience as an independent and major producer "has given me some insight into integrated solutions" to drilling and production problems, an area in which Baker Hughes specializes.
