AMERICA'S HEALTH PRICE: $50
PLATTS wrote, oilfield services provider Baker Hughes sees WTI oil prices in the mid-to-upper $50s/b as the catalyst for recovery in North America, including the Gulf of Mexico, where the company was hit hard hard in the third quarter of 2016, its CEO said Tuesday.
The North American market has continued to "grind slowly upwards" as the rig count, particularly in the US, ticks ahead from troughs seen six months ago, Martin Craighead said during a quarterly conference call with analysts. But "customers need to be more confident of the durability of those prices before making any significant change to their spending patterns," Craighead said.
The mid-$50s/b price is about 10% above where front-month WTI has teetered most of the past month, and Craighead's suggestions about this level echo comments made by peers at Halliburton and Schlumberger in separate conference calls during the past week.
But for Baker Hughes, a stagnant Gulf of Mexico hit its balance sheet hard in Q3 and nearly canceled out rising North American land activity and seasonal Canadian uplift. As a result, its North American revenue of $674 million in Q3 represented an increase of just 1% sequentially.
The Gulf of Mexico also dragged down Baker Hughes' overall Q3 revenues to $2.4 billion, which was down 2% sequentially on the back of activity reductions not only in that arena, but in deepwater Norwegian and West African plays too.
"In the Gulf of Mexico, we experienced project delays and reduced drilling activity as reflected by the 22% drop in rig count" in that region, Baker Hughes Chief Financial Officer Kimberly Ross said.
Craighead said Baker Hughes -- the third-largest oilfield services company behind Schlumberger and Halliburton -- was "disproportionately hurt" by the US Gulf in Q3, where it has consistently had about a 50% share of the drilling market, and he does not see a pickup until mid-2017 at the earliest.
"I'm not down on deepwater or offshore; it's going through a transition" as customers battle to pare down costs, he said.
"At these commodity prices, my customers in West Africa need about $65/b [to be profitable] and it's probably about $55/b in the North Sea and about the same in the Gulf of Mexico," he added. "We just need some period of stability for them to come back."
In the US Gulf, upstream customers -- particularly international oil companies -- are struggling with cash flows. One "significant" operator there told Baker Hughes recently its headquarters stipulated its managers were to deploy capital on "better opportunities" onland and internationally, Craighead said.
"If you look at the 17 or so rigs out there today [in the deepwater Gulf of Mexico], 10 at most have a contract that goes beyond second-quarter" 2017, he said. "There are six or seven rigs I don't have any visibility on."
In addition, ever since Baker Hughes' merger with Halliburton fell through in April amid a rash of US regulatory concerns, the company has embarked on a cost-cutting and self-improvement regime that has steered it on a path to identify broader new marketplace opportunities.
After the Halliburton merger fell apart in Q2, Baker set itself a goal of reducing $500 million per year in costs by year-end. It has already achieved that target and has now set a new goal of $650 million.
As for new business opportunities, Craighead said one in particular would blaze new trails: serving the growing market for countries whose oil services contracts have a local content requirement.
Baker Hughes could not only sell products and services to local providers in the Middle East, Latin America and Asia-Pacific where it does not currently have a presence, but also provide training, technical support and consulting, he said.
Competition with those providers elsewhere is a "risk, but a manageable one," Craighead said, since the company has existing patented technology and know-how. "A lot of it goes to ... selecting the right player [and] having the right agreements, tight and papered up well."
Also, Baker Hughes is preparing a transaction that would allow another entity to manage and invest in its North American land pressure pumping business while continuing to participate in that market in a "meaningful" way, he added.
The company is looking at a "range of ownership models" for that segment that would mitigate for Baker Hughes the "resource requirements and capital intensity inherent" in it, Craighead said. The business has become "really water and sand ... a horsepower and logistics game."
Baker Hughes is progressing toward some type of transaction with the aim of concluding it within the next few months, he said.
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API - American Petroleum Institute reported that the first four months of this year saw U.S. petroleum demand average 750 thousand barrels a day above the same period in 2017 despite higher prices, a sign of solid economic activity. April also saw the U.S. produce a record 10.5 million barrels per day (MBD) of oil.
IMF - “Egypt’s growth has continued to accelerate during 2017/18, rising to 5.2 percent in the first half of the year from 4.2 percent in 2016/17. The current account deficit has also declined sharply, reflecting the recovery in tourism and strong growth in remittances, while improved investor confidence has continued to support portfolio inflows. In addition, gross international reserves rose to $44 billion by end-April, equal to 7 months of imports.
BAKER HUGHES A GE - U.S. Rig Count is up 1 rig from last week to 1,046, with oil rigs unchanged at 844, gas rigs up 1 to 200, and miscellaneous rigs unchanged at 2. Canada Rig Count is up 4 rigs from last week to 83, with oil rigs up 6 to 38 and gas rigs down 2 to 45.
REUTERS - Brent crude futures LCOc1 were at $79.57 per barrel at 0310 GMT, up 27 cents, or 0.3 percent from their last close. Brent broke through $80 for the first time since November 2014 on Thursday. U.S. West Texas Intermediate (WTI) crude futures were at $71.62 a barrel, up 13 cents, or 0.2 percent, from their last settlement.