According to most stock charts, shares of Baker Hughes, a GE Company (NYSE:BKR) dropped more than 51% last year. 2017 wasn't quite as bad as the stock charts might indicate, but the company still struggled to find its footing.
Ok, first things first: BHGE's stock didn't lose over half its value. Instead, it's a product of the merger between Baker Hughes and General Electric's (NYSE:GE) oil & gas division that closed during the first half of the year. As a result of the merger, the stock, which was formerly just Baker Hughes, was repriced to reflect the additional shares added as a part of the GE addition. The repriced stock was 33% lower than Baker Hughes' stand-alone shares.
That makes this past year's decline more palatable, but that still leaves the company with a stock that is down 18% in 2018. That puts the company's fall within the range of its peers' 2017 performance.
Much of these companies' woes can be attributed to a lack of interest in oil and gas development outside North America. Shale drilling had an incredible year in 2017. In the U.S. alone, crude oil production climbed 11% to 9.78 million barrels per day. That much growth was enough to supply a vast majority of the world's demand growth for the year. As a result, oil prices remained relatively low throughout the year and producers outside of North America didn't have much appetite for spending on new projects. For Baker Hughes and Schlumberger, which generate more of their business outside North America, this dynamic has made for a tough year.
With oil prices trending higher in recent months and the international benchmark crude price above $65 a barrel, it is starting to look like we could see more investments in the oil and gas industry for 2018. That would bode well for BHGE and its peers as these three oil services giants combined control significant market share in just about every segment of the oil services business. BHGE's management noted in its most recent earnings presentation that orders for all of its business segments were up compared to this time last year despite the slowdown in revenue
The big unknown for BHGE is how management will fare in combining the two companies and generating a strategy to best utilize its unique position as both an equipment manufacturer and oil services provider. There is an incredible opportunity to be had if it can pull it off, but BHGE is charting new territory that could be wrought with challenges other oil services companies haven't experienced before.