Baker Hughes: Strategic Shift Towards International Markets Amid North American Slowdown

Factors behind North American Market Slowdown

Weaker gas prices, sustained capital discipline, market consolidation, and a significant reduction in rigs have contributed to the North American market slowdown. Despite initial growth expectations, these factors have led to a decline in activity and revenue, prompting companies to adjust strategies and resources.

"North America, we have been guiding originally positive up to mid-single growth and we have been realizing this down as the North America has been clearly impacted going forward. But, we still have opportunity to grow in the second half and to improve our margin as well in this basin as we adjust our resource and get the most out of deepwater market in Gulf of Mexico as well as our participation with technology intensity in some part of the North American land market." --- (SLB, earning call, 2024/Q2)

"In North America, we previously expected the market to decline in the low to mid-single-digit range compared to last year." --- (BKR, earning call, 2024/Q2)

"Our strategy to maximize value in North America, I understood it may take a market like we see today where North America activity declined by over 200 rigs in the last 18 months to demonstrate the margin resilience and earnings power of our strategy." --- (HAL, earning call, 2024/Q2)

"Meanwhile, in North America, activity remains soft due to weaker gas prices, sustained capital discipline, and the effects of ongoing market consolidation. The slower activity contributed to revenue in the region declining by 6%" --- (SLB, earning call, 2024/Q1)

"We maintain our expectations for year-over-year decline in activity in North America that we expect to be more than offset by growth in international market in 2024." --- (BKR, sec filing, 2024/Q1)

Baker Hughes' International Expansion Strategies

Baker Hughes is advancing its international expansion by enhancing natural gas solutions and manufacturing capabilities in Saudi Arabia, supported by robust financial resources and strategic execution, as highlighted by their solid first-quarter results and ongoing strategy implementation.

""Baker Hughes solutions are advancing the efficient use of natural gas, and we are proud to be delivering a reliable system to transport and distribute gas across Saudi Arabia." Baker Hughes is also investing in expanding its manufacturing site in Modon, Saudi Arabia." --- (BKR, press release, 2024/04/23)

"Baker Hughes remains committed to a flexible capital allocation policy that balances returning cash to shareholders and investing in growth opportunities." --- (BKR, sec filing, 2024/Q2)

"And that's been a strategy of focus. And the diversification of Baker Hughes is across the two major segments." --- (BKR, earning call, 2024/Q1)

"Baker Hughes Company 2024 First Quarter Form 10-Q | 29 Cash Requirements We believe cash on hand, cash flows from operating activities, the available revolving credit facility, access to both commercial paper and our uncommitted lines of credit, and availability under our existing shelf registrations of debt will provide us with sufficient capital resources and liquidity in the short-term and long-term to manage our working capital needs, meet contractual obligations, fund capital expenditures and dividends, repay debt, repurchase our common stock, and support the development of our short-term and long-term operating strategies." --- (BKR, sec filing, 2024/Q1)

""2024 has gotten off to a good start for Baker Hughes. Our solid first-quarter results put us on a path toward achieving our full-year guidance and continue to build on the momentum from last year as we execute our strategy," said Lorenzo Simonelli, Baker Hughes chairman and chief executive officer." --- (BKR, press release, 2024/04/23)

Performance in Key International Regions

Baker Hughes saw significant international revenue growth, particularly in the Europe/CIS/Sub-Saharan Africa and Middle East/Asia regions. The Middle East and Asia set new records, with the Eastern Hemisphere, especially the Middle East, showing strong performance. Overall, international markets posted high single-digit growth, with a 7% quarter-over-quarter increase.

"International revenue was $2,793 million in the first quarter of 2024, an increase of $208 million from the first quarter of 2023, primarily driven by the Europe/CIS/Sub-Saharan Africa and Middle East/Asia regions, partially offset by Latin America regions." --- (BKR, sec filing, 2024/Q1)

"These results were driven by continued growth momentum in international markets, with more than half of our international geo units posting the highest revenue quarter of the cycle. Overall, international revenue grew 6% sequentially, led by the Middle East and Asia, which continued to set new records with two-thirds, 8 out of 12, of the year units in the area posting record high quarterly revenue." --- (SLB, earning call, 2024/Q2)

"Lorenzo Simonelli: Yes. Definitely, Dave. And as you said, we continue to see an outlook of high single-digit in the international market and very pleased with also the second quarter performance from a quarter-over-quarter being up 7%." --- (BKR, earning call, 2024/Q2)

"Reservoir Performance Reservoir Performance revenue of $1.7 billion decreased 1% sequentially as seasonal activity reductions in Russia and Asia were partially offset by activity increases in the Middle East, North America, and Europe & Africa." --- (SLB, sec filing, 2024/Q1)

"But, you outperformed overall, internationally, your peers 7% sequentially, Eastern Hemisphere is really strong, particularly in the Middle East." --- (BKR, earning call, 2024/Q2)

Financial Impact of International Market Focus

Baker Hughes' strategic focus on international markets has led to significant financial benefits, including robust demand fundamentals and improved execution on larger projects. This shift has resulted in notable revenue growth and margin improvements, as evidenced by similar trends in competitors like Halliburton and Schlumberger.

"Partially offset by higher activity in international markets. In our Drilling and Evaluation division, revenue in Q1 was $2.4 billion, an increase of 7% compared to Q1 2023." --- (HAL, earning call, 2024/Q1)

"Factors impacting this range include the phasing of 2024 E&P budgets, SSPS backlog conversion, realization of further cost out initiatives and execution on larger international projects." --- (BKR, earning call, 2024/Q2)

"SLB remains confident in its global revenue growth outlook for 2024, with softness in North America being offset by upside in the international markets." --- (SLB, sec filing, 2024/Q1)

"Both divisions demonstrated margin improvement year-over-year. International revenue was $3.3 billion, and grew 12% year-over-year, led by Latin America, which delivered a 21% increase." --- (HAL, earning call, 2024/Q1)

"And I think the fundamentals from a demand perspective, especially with international activity continue to be robust as we look at also 2025." --- (BKR, conference, 2024/06/18)

Competitive Landscape in International Markets

Baker Hughes faces a competitive international market with Halliburton and Schlumberger both expanding their unconventional and technology-driven services. Baker Hughes leverages its extensive installed base and aftermarket opportunities to enhance its competitive edge and capitalize on new service and upgrade opportunities.

"So, I think that's a big move forward. And I think more broadly, so good for Halliburton, but I think that more broadly, just the discussion around unconventionals internationally, what can you see today are two markets, at least outside the U.S., that are truly at scale." --- (HAL, earning call, 2024/Q1)

"So it is a very distinctive and it's more razor blade type of approach. And in fact, if you look at that business, it's got a great aftermarket and it's got a great installed base of assets between the compressors, the pumps, the turbines that has a huge historical opportunity for us to mine new service opportunities and also provide upgrades as we go forward within the energy landscape." --- (BKR, conference, 2024/06/18)

"Reservoir Performance pretax operating margin of 20% expanded 276 bps year on year on improved profitability in the international markets driven by higher activity and improved pricing from increased technology intensity." --- (SLB, sec filing, 2024/Q2)

Technological and Service Innovations for International Growth

Baker Hughes is leveraging technological and service innovations to drive international growth. They are deploying platforms in Europe, the Middle East, and Asia, introducing new products like Lift, and focusing on gas infrastructure opportunities globally. Their strategy emphasizes delivering unique technologies that create real value for customers.

"And also we'll build on the initial success they have had to deploy this platform to some European markets and use our footprint where we see the market evolving fast in North America, Middle East and in Asia and using this platform and being the go-to-market for this carbon capture solution that they are offering, but supplementing it with our innovation that we are investing in and using this as a platform to deploy innovation." --- (SLB, earning call, 2024/Q1)

"We've added some new things, yes, like Lift internationally, that's a new product for growth, a new product that's a whole business, but it's growth end markets, and we're really pleased with the progress that that's making." --- (HAL, earning call, 2024/Q1)

"Looking over the next few years, we see continued strength in gas infrastructure opportunities across the Middle East, U.S., Latin America, and Sub-Saharan Africa, due to secular growth in global natural gas and LNG demand through at least 2040." --- (BKR, earning call, 2024/Q2)

"to lift technology that can span downtown life. We will expect that most of the liquids that will have to be produced in the next decades will require some form of lift to have a comprehensive lift solution, again, is critical for our success." --- (SLB, M&A Announcement, 2024/04/02)

"And I think maybe more answer than you want, but I think it's important that we keep central as our strategy is delivering unique technologies that create real value for customers." --- (HAL, earning call, 2024/Q1)