Baker Hughes (NYSE:BHI) reported lower margins in its North American segment in the first quarter of 2012, as the company's domestic operations suffered from both industry- and company-specific issues.
Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.
First Quarter of 2012
Baker Hughes reported pretax margins of 14% in North America in the first quarter of 2012, down from 19% in the same quarter of 2011. North American margins also dropped sequentially from the 15% level reported in the fourth quarter of 2011.
SEE: What Determines Oil Prices?
The shift in development away from natural gas plays has led to a migration of oil services capacity to oil and liquids areas. This shift, along with the addition of new capacity, has led to pricing pressure in the market for hydraulic fracturing services.
The problems that Baker Hughes faced in the first quarter of 2012 were not unique and affected many of its peers. Both Halliburton (NYSE:HAL) and Schlumberger (NYSE:SLB) also reported weaker margins in North America in the first quarter of 2012.
Baker Hughes also suffered from supply chain issues that are specific to the company, but expects these to abate by the second half of 2012.
None of these issues came as a surprise to investors, as Baker Hughes preannounced weaker North American results in late March 2012.
SEE: Oil And Gas Industry Primer
Baker Hughes estimates that the pricing pressure in hydraulic fracturing services will last through the end of 2012. The company reported no pricing pressure in other oil service lines offered by the company.
Baker Hughes reported strong business conditions in the International area, and highlighted the company's operations in the Europe/Africa/Russia segment. The company said that it worked on a number of high impact wells in Nigeria, Mozambique and Angola during the quarter. Baker Hughes reported pretax margins of 17% in the Europe/Africa/Russia segment in the most recent quarter, up from 11% in the same quarter of 2011.
Anadarko Petroleum (NYSE:APC) is one of the exploration and production companies working in Mozambique. The company recently reported the success of the Barquentine-4 well capping off its appraisal program of Offshore Area 1 of the Rovuma Basin.
Eni (NYSE:E) has also found success in offshore Mozambique and recently raised its estimate of the potential resources here to 40 Tcf of natural gas in place.
SEE: A Guide To Investing In Oil Markets
The Bottom Line
Although Baker Hughes reported weaker results in North America, the company's strong International operations offset this disappointment. These financial results were also in line with the company's pre-announcement and should not have shocked investors that follow the sector closely.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.
InvestingHow do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
InvestingMany global Investment banks are highly involved in the energy industry, but there are also some smaller banks and boutiques that are strong players.
Stock AnalysisThese three stocks are resilient, fundamentally sound and also pay generous dividends.
Investing NewsAre stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
Investing NewsHere are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
Investing NewsHere are three resilient, dividend-paying companies that may mitigate some worry in an uncertain investing environment.
Stock AnalysisIf you're not sure where Ford and General Motors are going, you might want to look at this auto investment option instead.
Mutual Funds & ETFsExplore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
Mutual Funds & ETFsLearn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
Investing NewsWill Ferrari's shares move fast off the line only to sputter later?
When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>