Baker Hughes Announces Third Quarter Results

HOUSTON, Oct. 18, 2013 /PRNewswire/ -- Baker Hughes Incorporated (NYSE: BHI) announced today results for the third quarter of 2013 are as follows:

Adjusted net income for the third quarter of 2013 excludes after-tax severance charges of $17 million ($0.04 per diluted share) related to restructuring in Latin America, but includes an after-tax charge of $42 million ($0.09 per diluted share) for bad debt provisions in Latin America.  Please see Table 1 for a reconciliation of GAAP to non-GAAP Financial Measures.

"During the quarter, we achieved record revenue and strong earnings growth.  In addition, we increased margins sequentially in each of our four geographic segments," said Martin Craighead, Baker Hughes' Chairman and Chief Executive Officer.  "Specifically, in our Eastern Hemisphere operations, we increased revenue 20% compared to the same quarter last year at higher margins as a result of increased activity and improved mix.  This growth was led by strong performance in the Middle East, Asia Pacific, Africa, and Russia Caspian.

"North America also delivered higher margins with the seasonal recovery in Canada and improved performance in all of our product lines.  Across the region, growth was led by our Drilling Services, Completions Systems, Artificial Lift, and Upstream Chemicals businesses.

"The increasing complexity of oil and gas production aligns with our strength in technology and reservoir expertise.  By leveraging our heritage of innovation, we will continue to deliver new technologies and unique solutions that address tomorrow's exploration and production challenges."

Cash increased $245 million to $1.37 billion as of September 30, 2013, compared to $1.12 billion at June 30, 2013.  Debt decreased by $334 million to $4.58 billion compared to the second quarter of 2013.

Capital expenditures were $511 million, depreciation and amortization expense was $423 million and dividend payments were $68 million in the third quarter of 2013.

Adjusted EBITDA (a non-GAAP measure) in the third quarter of 2013 was $1.0 billion, an increase of $158 million compared to the second quarter of 2013.  A reconciliation of net income attributable to Baker Hughes to Adjusted EBITDA is provided in Table 2.  Supplemental financial information for revenue and adjusted operating profit before tax (a non-GAAP measure) is provided in Tables 5a and 5b.

The following financial statements and information in Tables 1 through 5 are unaudited.

The following table reconciles net income attributable to Baker Hughes, which is the directly comparable financial result determined in accordance with Generally Accepted Accounting Principles (GAAP), to adjusted net income¹ (a non-GAAP financial measure).  This excludes identified items with respect to the third quarters of 2013 and 2012.  There were no identified items requiring adjustment for the second quarter of 2013.

The following table contains non-GAAP measures of operating profit before tax and operating profit before tax margin, excluding the severance charges related to restructuring in Latin America in the third quarter of 2013, and charges related to information technology and the closure of a chemical manufacturing facility recorded in the third quarter of 2012 (see Table 4).  There were no items requiring adjustment for the second quarter of 2013.

The following table contains non-GAAP measures of operating profit before tax and operating profit before tax margin, excluding the restructuring charges in Latin America recorded in the third quarter of 2013, the charge for the devaluation of the Venezuelan currency recorded in the first quarter of 2013, and charges related to information technology and the closure of a chemical manufacturing facility recorded in the third quarter of 2012 (see Table 4).

Baker Hughes Operational Highlights

This quarter, Baker Hughes officially launched ProductionWave™, a comprehensive suite of products and services specifically tailored towards production optimization in the unconventional market.  ProductionWave solutions include combinations of FLEX™ pump technology, sand control products, chemical injection systems, and real-time monitoring services, providing our customers with new field development options to address the specific challenges of wide flow ranges, high gas production, and the typical paraffin, scale, and sand production associated with unconventionals.  In addition to achieving increased production rates, our customers are benefiting from lower installation and maintenance costs when compared to other artificial lift systems.  ProductionWave and FLEX pump technology are already gaining traction in the U.S. market.  In the brief time since launch, 46 FLEX pumps have been installed in low-flow wells.

Recently, Baker Hughes announced the availability of its StayCool™ multidimensional cutters, which help operators drill faster and more cost effectively by extending the cutter life and footage per run, especially in difficult drilling environments.  The StayCool cutter's patent-pending contoured design reduces friction and maintains a sharper cutting edge throughout the bit run.  The StayCool cutters have already drilled more than 300,000 feet in 90 runs, in five different applications in field tests, and for more than 20 customers throughout the U.S.  In the Cana Woodford field of Oklahoma, this technology provided customers with a 10% improvement in the rate of penetration and a 37% improvement in footage when drilling through hard sands interbedded with hard limestone.

Baker Hughes launched its ClearStar™ synthetic fracturing fluid system, which improves reservoir performance and delivers superior flowback for increased production and improved economic results compared to traditional guar based systems.  Used with the Baker Hughes EnZyme™ and HighPerm™ encapsulated breakers, ClearStar fluids minimize the risk of formation and proppant pack damage to ensure maximum flowback capacity and speed and increase both initial and long-term hydrocarbon production.  In 32 separate treatments in Colorado's Wattenberg field, this system produced an average of 11% more cumulative oil over 350 days of production compared to wells stimulated using premium, guar-based fluids.

Baker Hughes H2prO™ services continue to build momentum across a number of basins including the Permian, Marcellus, and Eagle Ford.  In September, Baker Hughes reached a milestone in our Water Management business by treating five million barrels of produced water in a single month for the first time.  Our Water Management and Pressure Pumping teams also successfully performed a fracture stimulation treatment for a customer in West Texas using 100% treated produced water.  The job was the first produced water crosslink frac job performed by this customer and resulted in a successful 17-stage fracture stimulation job.

During the third quarter, Shell and Baker Hughes executed a software license and joint development agreement to produce a high-end platform for geological and reservoir modeling.  The new platform will bring enhanced evaluation and visualization capabilities to Shell, allowing geoscience and petroleum engineering experts to better plan and manage the extraction of oil and gas resources and maximize their full potential.  The system will be optimized for reservoir modeling and production in tight/shale gas and liquids rich shale reservoirs, and is based on the Baker Hughes JewelEarth™ software platform, which has a strong track record of delivering integrated, data-driven workflows for optimizing these types of plays.

During the third quarter, Baker Hughes announced the strengthening of its business alliance with CGG and the realignment of the firms' joint venture to focus on surface and borehole microseismic monitoring, processing, visualization, and interpretation.  The joint venture, now called Magnitude, strengthens the capabilities of Baker Hughes and CGG in unconventional resource plays and other emerging markets. In addition to surface and borehole microseismic monitoring, Magnitude will work more closely with CGG and their microseismic team to provide a more complete reservoir monitoring solution.

Baker Hughes and Petronas Carigali have entered into a long-term Oilfield Service Agreement to enhance recoverable reserves and production of hydrocarbons in the Greater D18 field, offshore Malaysia.  This 23-year agreement is a result of a successful field development study and production enhancement campaign by our Reservoir Development Services and Integrated Operations groups.  Commencing in the fourth quarter, this award will support continued growth in the region, and complements our growing position in field management projects around the world.

During the third quarter, Baker Hughes achieved a significant milestone by drilling the deepest well in the history of the Gulf of Mexico to a depth of 36,552 feet.  Achieving this record required operating in extreme pressures over 30,000 pounds per square inch.

Supplemental Financial Information

Supplemental financial information can be found on the Company's website at:  www.bakerhughes.com/investor in the Financial Information section under Quarterly Results.

Conference Call and Webcast

The Company has scheduled a conference call and webcast to discuss management's outlook and the results reported in today's earnings announcement.  The call will begin at 8 a.m. Eastern time, 7 a.m. Central time on Friday, October 18, 2013, the content of which is not part of this earnings release.  A slide presentation providing summary financial and statistical information that will be discussed on the conference call will also be posted to the Company's website and available for real-time viewing at www.bakerhughes.com/investor.  To access the conference call, please call the conference call operator at: 800-446-1671 in the U.S., or 847-413-3362 for international calls.  Please call in 20 minutes prior to the scheduled start time and ask for the "Baker Hughes Conference Call."  A replay of the call will be available through Friday, November 1, 2013.  The number for the replay is: 888-843-7419 in the U.S., or 630-652-3042 for international calls, and the access code is:  35542417.  To access the webcast, go to our Events and Presentations page on the Company's website at: www.bakerhughes.com/investor.

Forward-Looking Statements

This news release (and oral statements made regarding the subjects of this release, including on the conference call announced herein) contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (each a "forward-looking statement").  The words "anticipate," "believe," "ensure," "expect," "if," "intend," "estimate," "project," "foresee," "forecasts," "predict," "outlook," "aim," "will," "could," "should," "potential," "would," "may," "probable," "likely," and similar expressions, and the negative thereof, are intended to identify forward-looking statements.  There are many risks and uncertainties that could cause actual results to differ materially from our forward-looking statements.  These forward-looking statements are also affected by the risk factors described in the Company's Annual Report on Form 10-K for the year ended December 31, 2012, Baker Hughes' subsequent quarterly report on Form 10-Q for the quarterly periods ended March 31, and June 30, 2013; and those set forth from time-to-time in other filings with the Securities and Exchange Commission ("SEC").  The documents are available through the Company's website at:  www.bakerhughes.com/investor or through the SEC's Electronic Data Gathering and Analysis Retrieval System ("EDGAR") at:  www.sec.gov.  We undertake no obligation to publicly update or revise any forward-looking statement.

Our expectations regarding our business outlook and business plans; the business plans of our customers; oil and natural gas market conditions; cost and availability of resources; economic, legal and regulatory conditions and other matters are only our forecasts regarding these matters.

These forward looking statements, including forecasts, may be substantially different from actual results, which are affected by many risks including the following risk factors and the timing of any of these risk factors:

Economic and political conditions – the impact of worldwide economic conditions and sovereign debt crises in Europe; the effect that declines in credit availability may have on worldwide economic growth and demand for hydrocarbons; the ability of our customers to finance their exploration and development plans; foreign currency exchange fluctuations and changes in the capital markets in locations where we operate; and the impact of government disruptions such as a U.S. government shutdown.

Oil and gas market conditions – the level of petroleum industry exploration, development and production expenditures; the price of, volatility in pricing of, and the demand for crude oil and natural gas; drilling activity; drilling permits for and regulation of the shelf and the deepwater drilling; excess productive capacity; crude and product inventories; LNG supply and demand; seasonal and other adverse weather conditions that affect the demand for energy; severe weather conditions, such as tornadoes and hurricanes, that affect exploration and production activities; Organization of Petroleum Exporting Countries ("OPEC") policy and the adherence by OPEC nations to their OPEC production quotas.

Terrorism and geopolitical risks – war, military action, terrorist activities or extended periods of international conflict, particularly involving any petroleum-producing or consuming regions; labor disruptions, civil unrest or security conditions where we operate; expropriation of assets by governmental action; cybersecurity risks and cyber incidents or attacks.

Price, market share, contract terms, and customer payments – our ability to obtain market prices for our products and services; the ability of our competitors to capture market share; our ability to retain or increase our market share; changes in our strategic direction; the effect of industry capacity relative to demand for the markets in which we participate; our ability to negotiate acceptable terms and conditions with our customers, especially national oil companies, to successfully execute these contracts, and receive payment in accordance with the terms of our contracts with our customers; our ability to manage warranty claims and improve performance and quality; our ability to effectively manage our commercial agents.

Costs and availability of resources – our ability to manage the costs, availability, distribution and delivery of sufficient raw materials and components (especially steel alloys, chromium, copper, carbide, lead, nickel, titanium, beryllium, barite, synthetic and natural diamonds, sand, gel, chemicals, and electronic components); our ability to manage energy-related costs; our ability to manage compliance-related costs; our ability to recruit, train and retain the skilled and diverse workforce necessary to meet our business needs and manage the associated costs; the effect of manufacturing and subcontracting performance and capacity; the availability of essential electronic components used in our products; the effect of competition, particularly our ability to introduce new technology on a forecasted schedule and at forecasted costs; potential impairment of long-lived assets; unanticipated changes in the levels of our capital expenditures; the need to replace any unanticipated losses in capital assets; labor-related actions, including strikes, slowdowns and facility occupations; our ability to maintain information security.

Litigation and changes in laws or regulatory conditions – the potential for unexpected litigation or proceedings and our ability to obtain adequate insurance on commercially reasonable terms; the legislative, regulatory and business environment in the U.S. and other countries in which we operate; outcome of government and legal proceedings, as well as costs arising from compliance and ongoing or additional investigations in any of the countries where the Company does business; new laws, regulations and policies that could have a significant impact on the future operations and conduct of all businesses; laws, regulations or restrictions on hydraulic fracturing; any restrictions on new or ongoing offshore drilling or permit and operational delays or program reductions as a result of the regulations in the Gulf of Mexico and other areas of the world; changes in export control laws or exchange control laws; the discovery of new environmental remediation sites; changes in environmental regulations; the discharge of hazardous materials or hydrocarbons into the environment; restrictions on doing business in countries subject to sanctions; customs clearance procedures; changes in accounting standards; changes in tax laws or tax rates in the jurisdictions in which we operate; resolution of tax assessments or audits by various tax authorities; and the ability to fully utilize our tax loss carry forwards and tax credits.

Baker Hughes is a leading supplier of oilfield services, products, technology and systems to the worldwide oil and natural gas industry.  The Company's 60,000-plus employees today work in more than 80 countries helping customers find, evaluate, drill, produce, transport and process hydrocarbon resources.  For more information on Baker Hughes' century-long history, visit: www.bakerhughes.com.

Investor Contacts:
Trey Clark, +1.713.439.8039, trey.clark@bakerhughes.com
Eric Holcomb, +1.713.439.8822, eric.s.holcomb@bakerhughes.com

Media Contact:
Christine Mathers, +1.713.439.8738, christine.mathers@bakerhughes.com

SOURCE Baker Hughes Incorporated