Energy Services Companies Warn of a Slowdown


On Tuesday, Baker Hughes warned that international markets are slowing down and, as a result, the company is cutting its guidance for the quarter. This, coupled with Schlumberger's weak guidance last week, gives credence that the world drilling market is slowing down. While some energy services companies see opportunity in the international offshore market, these new reports of slowdowns show that there's nowhere to hide for energy services companies.

Energy services companies have been reporting mixed results the past year, as the North American market, particularly natural gas, has been slowing down. You can read the U.S. natural gas story here.

Schlumberger last week pointed to Europe, Africa, and the North American onshore market, where business was weaker than they had expected. Analysts had been expecting Q4 earnings per share of $1.19, but have been slowly revising this number downward, as Schlumberger said the slowdown would result in an impact of $0.05 to $0.07 per share.

Baker Hughes said the North American market was slowing further. The company also said that pricing in North America is weakening, and its margins in the continent would likely fall to 8.5%-9.5%, down from 11.7% in the first quarter. Internationally, the main things Baker Hughes pointed to were slowdowns in Brazil and Columbia, as well as the North Sea and Iraq.

The international slowdown is a continuation of trends that Baker Hughes pointed to in the Q3 conference call. In it, the company noted, "Brazil, Colombia and Norway rig counts were down collectively by about 17% and these are all meaningful markets for Baker Hughes."

The slowdown in S. America can be seen elsewhere. British oil and gas giant BG Group had reported delays with its projects with Petrobras in Brazil. The regulatory environment in Brazil is tough, to say the least; Brazil is suing Chevron and Transocean for billions in damages after a relatively small oil spill at an offshore rig. Also, November's international rig count showed a marked decline in rigs operating in South America.


Source: Baker Hughes International Rig Count

Speaking about Iraq the company had noted in the Q3 conference call:

We experienced costs and delays due to the movement of equipment into Iraq. And even though Iraq contributed to the international margin compression this quarter, I firmly believe that being in Iraq is the right thing to do for Baker Hughes in the long term and we are committed to making our Iraq operations a meaningful contributor to our portfolio.

Baker Hughes believed these trends would reverse themselves in the 4th quarter, but the new guidance is an acknowledgement that they did not.

Energy investors should be aware that the canaries in the coalmine for the worldwide energy market are showing signs of a slowdown.

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Dan Dzombak can be found on Twitter @DanDzombak, or on his Facebook page at DanDzombak. He has no positions in the stocks mentioned above. The Motley Fool owns shares of Transocean. Motley Fool newsletter services recommend Chevron and Petroleo Brasileiro S.A. (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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