--Baker Hughes says transition to oil drilling increases costs, weakens prices for its services
--Shares down 3.91%; shares of Halliburton, Nabors Industries also fall
--Baker Hughes reducing capital expenses to adapt to market changes
By Angel Gonzalez
Baker Hughes Inc. (>> Baker Hughes Incorporated) expects its first-quarter operating profit to decline from the prior quarter as rapidly changing market conditions have hurt its pressure-pumping product line in North America.
As with other oilfield-services companies, Baker Hughes is facing a difficult adjustment as companies such as Chesapeake Energy Corp. (CHK) retreat from natural gas drilling amid a 10-year low in the commodity's price. The drilling-services provider on Wednesday said the continued shift of U.S. rig activity to oil and liquids-rich basins has decreased fleet utilization, lowered pricing and increased personnel and logistics costs. The market shift has also contributed to shortages of, and higher costs for, critical raw materials, such as gel.
Shares of Baker Hughes recently traded down 3.8% at around $46. The effect of the company's outlook was also felt in the stock of other oilfield-service providers with large exposure to North America. For example, shares of Halliburton Co. (HAL) were down 1.8% at $34.14, and those of Nabors Industries Ltd. (>> Nabors Industries Ltd.) were down 4% at $19.26.
However, many of Baker Hughes's issues are unique to the company, said analysts with Simmons & Co. If Halliburton's stock "gets slammed today, buy it," the analysts said.
Baker Hughes said it now expects first-quarter North America operating profit before tax margin of between 13.2% and 14.2%, compared with 18.7% in the fourth quarter.
For international operations, the company predicts an operating profit before tax margin of 12.2% to 13.2%, compared with 15.6% in the prior quarter, due in part to seasonality of product sales, weather, geographic mix and project delays in Latin America.
The company said it is reviewing its budgets and expects to adjust 2012 capital expenditures for the pressure-pumping product line to align with current market conditions. Simmons analysts said Baker Hughes would eventually succeed in addressing the challenge. "This management team has done it before," the analysts said.
In January, Baker Hughes reported its fourth-quarter earnings fell 6.3%, despite a 22% revenue jump, as it stumbled in serving oil and gas producers racing to drill in increasingly prolific U.S. shale oil fields.
-By Angel Gonzalez, Dow Jones Newswires; 713-547-9214; email@example.com
--Melodie Warner contributed to this article.