Baker Hughes' Friday Report Could Boost Its Standing

When Houston-based oil-field services provider Baker Hughes (NYSE: BHI  ) tells us about its first 2013 quarter on Friday, the results may not set off a bevy of buy orders for the company's shares.

Indeed, Baker Hughes is a solid and innovative company. However, it finds itself generating nearly half its revenues in the North American market, where natural gas-related activity has slowed appreciably during the past several quarters. And while the company is expanding its international operations around much of the globe, achieving the geographic diversity of, for instance, Schlumberger -- with more than two-thirds of its revenue coming from outside of North America -- will obviously take time.

The consensus
For the quarter, analysts who follow Baker have reached a per-share earnings consensus for the quarter of $0.63, down a substantial 27% year over year. Revenues are expected to dip to about $5.18 billion, from the year-ago $5.36 billion. With those prognostications and results in mind, it's worth recalling that, in the December quarter, the company's per-share earnings plummeted by fully 37% from those of the final quarter of 2011. But even more surprisingly, they undershot analysts' expectations by 21%.

Expanding international presence
Beyond management's inevitable comments about the state of the North American markets, there are a number of nascent international operations at the company that I'm eager to learn more about:

  • The company is in the early stages of a joint venture with Paris-based CGGVeritas. The venture will combine Baker Hughes' near-wellbore geomechanical and petrophysical properties with Veritas's seismic capabilities. The combination will enhance customers' ability to conduct shale reservoir exploration.
  • Baker will be a major participant in Saudi Aramco's plans to drill about seven test wells for shale gas this year. The obvious intent of that operation is to increase fuel availability for internal use, such that an increased percentage of the oil produced in the country will be available for export. Baker Hughes believes that the country may sit atop as much as 645 trillion cubic feet of technically recoverable shale gas, compared with about 283 trillion cubic feet of proven conventional gas reserves.
  • Also in the early stages is a two-year contract with Norway's Statoil for integrated support in the North Sea, the Norwegian Sea, and the Barents Sea. The contract is subject to extension for up to four years.
  • Working with a number of major producers, Baker Hughes has recently become actively involved in expanding exploratory and production activities in the promising South China Sea.
  • Given the steady expansion of oil-field activity in Australia, Baker Hughes is the proud owner of a new facility at Welshpool in that country. At the same time, during the latest quarter Baker signed a new contract with Chevron to provide pipeline pre-commissioning services in the giant Gorgon project off the country's Northwest Shelf.
  • Baker Hughes' repertoire of significant international projects includes a still new pact with Russia's Lukoil for drilling in the West Qurna-2 oil-fields in Iraq. In addition, Baker has inked another new agreement involving the drilling of 60 wells in Zubar, in the southern part of the country.

A Foolish takeaway
A perspective on a possible strengthening in the North American markets will obviously be a subject of real importance for Baker's management to address during the company's conference call. But so will increased detail about the above international operations.

As of now, 22 of the 31 analysts who follow Baker Hughes (about 70%) have the company rated a hold. The information that's provided on Friday could have a meaningful effect on lowering that percentage in favor of more positive ratings.

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