Baker Hughes: High prices, demand revive drilling

Rising demand and prices for oil and natural gas in the US and Canada will help the oil field service and supply sector continue its revitalization, said Gary R. Flaharty, director of investor relations for Baker Hughes Inc., Wednesday at the Banc of America Securities energy conference in Houston.


Karen Broyles
OGJ Online

HOUSTON�Rising demand and prices for oil and natural gas in the US and Canada will help the oil field service and supply sector continue its revitalization, said Gary R. Flaharty, director of investor relations for Baker Hughes Inc., Wednesday at the Banc of America Securities energy conference in Houston.

Flaharty says seismic companies have been lagging behind other segments of the service-supply sector during the recovery. Drilling companies were the first to recover, followed by completion companies 3-6 months later.

Increased drilling activity is mostly driven by demand for gas, he said, which increased more than 60% for June from a peak seen in 1997, while oil-directed drilling has risen just 45% since 1997's peak.

Industry forecasts call for gas demand to boost onshore and offshore drilling by 43% in Canada, 40% in the US, and 19% in Latin America, says Flaharty. Drilling activity also is expected to rise by 25% in central and West Africa and by 6% in the Middle East but will remain flat in Europe and decline 4% in Asia.

Most of the US drilling activity is being generated by independent exploration and production companies, whose drilling efforts make up 62% of total activity. But the biggest gains in E&P spending are occurring among supermajors and national oil companies. The E&P expenditures of smaller independents comprise only a quarter of overall industry spending.

Baker Hughes is forecasting that 750 rigs will be drilling in the US at yearend.

Restructuring
Like many companies, Baker Hughes has made several recent moves aimed at focusing its operations and improving results.

In addition to seeking a buyer for its process and separation technology unit, Baker Process, Joe B. Foster, the company's interim chairman, president, and CEO, says Baker Hughes is seeking further cost savings through possible joint ventures, such as Western Geco a planned 30-70 JV of Baker Hughes and Schlumberger. Western Geco would combine the firms' Western Geophysical and Geco Prakla units (OGJ Online, June 12, 2000). That deal is still awaiting approval, which is expected sometime in fourth quarter 2000.

Baker Hughes plans next to sell certain exploration and production properties and its Tuboscope business unit in order to improve its cash flow.

Foster said Baker Hughes will not meet its schedule to name a permanent CEO to head up the company, but he's confident the firm will soon find a suitable candidate to fill the slot. Foster, chairman of Newfield Exploration Inc., says he'll remain as chairman, president, and CEO of Baker Hughes until a new CEO is selected.

Foster has served as interim head since former CEO Max L. Lukens resigned from the company in January.

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