US-based Baker Hughes on Tuesday became the second large-capital oil service company in as many weeks to issue a warning of lower fourth-quarter earnings because of weaker North American and international activity.
Baker Hughes' North America "operating profit before tax margin" is expected to be 8.5%-9.5% for the fourth quarter, compared with 11.7% in the third quarter, it said in a statement Tuesday.
The company said its international operating profit before tax margin is expected to be similar to the 12% reported in the third quarter, excluding the impact of bad debts recognized in Latin America and Europe.
Fellow oil service company Schlumberger less than a week ago warned in a statement that its Q4 earnings are estimated to be impacted by 5-7 cents/share because of the weak activity in the US and Canada and delays to contracts in Europe, CIS and Africa.
In North America, Baker Hughes cited "weaker than anticipated onshore activity and further price erosion within pressure pumping operations."
Internationally, "operations are being adversely impacted by several factors, including weaker than anticipated rig count activity in Brazil and Colombia, activity delays in the North Sea, and continued operational delays in Iraq," Baker Hughes said in the statement.
Baker Hughes spokeswoman Pam Easton would not comment on specific issues in Brazil, Columbia and Iraq, pointing to an upcoming fourth-quarter earnings conference call scheduled for January 23 for more details.
Delays in Iraq are mostly due to "startup issues" and a challenging logistics environment, Barclays analyst Harry Mateer said, noting an abundance of new drilling in Iraq.
"I attribute the Brazil weakness to less exploratory drilling and a shift in business mix away from workover and well site testing," he said.
High-growth producers in Brazil are reining in spending, Mateer said.
In Columbia, permits have been delayed, according to a Credit Suisse analyst note released Tuesday.
Baker Hughes' weaker guidance is not surprising on the back of Schlumberger release last week, Mateer said Tuesday in a note.
"Similar to Schlumberger, although the preannouncement is disappointing, we believe the [North American] market is going through a sloppy bottoming process (which has been magnified by the drop in year-end spending)," International Strategy and Investment Group analyst Judson Bailey said Tuesday in a note.
Baker Hughes shares in midday trading were valued at $42.37, up $1.72/share.
The North American oil services market should see a modest recovery in 2013, Bailey said in a previous ISI note.
Exploration and production companies were expected to slow operations in North America on depleted 2012 budgets, sources have said. New technology and efficient drilling has allowed for the completion of drilling programs ahead of schedule, analysts have said.
There has been a meaningful drop in the [US] rig count in October and November, according to the most recent note.
For the week ending December 14, the US oil rig count was 1,381, down 27 from the week ending September 28, when the rig count was 1,408, according to Baker Hughes data. During the same time period, the US natural gas rig count was down 19 rigs to 416.
This year, dramatically weaker natural gas prices caused a decline in drilling, and an oversupply of pressure pumping capacity has resulted.
Weaker drilling activity in Brazil and Columbia and activity delays were known as issues for Baker Hughes, while delays in the North Sea are "new, but [Schlumberger] had similar issues," Tudor Pickering analysts said Tuesday in a note.
The Europe/CIS/Africa weakness is driven partially by Norway and seasonality in Russia, Bailey said in the Friday note.
Norway's crude oil production fell 14% to 1.443 million b/d in November, hit by unforeseen outages at several fields, according to a preliminary estimate issued Friday by the Norwegian Petroleum Directorate.
"Many of the international issues infecting [the fourth quarter of 2012] are actually unresolved [third-quarter] issues," CLSA analyst David S. Havens said in a Tuesday note.
"Internationally, the collective rig count in Brazil, Colombia and Norway was down 17% compared to the last quarter, and these are all meaningful markets for Baker Hughes," Baker Hughes said in a third-quarter earnings statement. At the time, the company expected international activity in the fourth quarter to rebound, according to the statement.
