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Baker Hughes Says Shift Away From Gas Rigs to Hurt Earnings

Baker Hughes Inc., the world’s third-largest oilfield-services provider, expects operating profit before tax for the first quarter to fall as producers shift drilling from natural gas to crude.

North American first-quarter profit margin will drop to as low as 13.2 percent from 18.7 percent because of lower prices, higher costs and supply shortages as U.S. operators shift rig locations, Houston-based Baker Hughes said in a statement today. Companies are drilling for oil because it’s worth about eight times more on an energy-equivalent basis than gas on U.S. markets, according to data compiled by Bloomberg.

The drop would be the second consecutive quarterly decline in North American profit margin, based on company statements. The company wasn’t prepared for the increased demand for hydraulic fracturing of wells, including the shift toward oil production, Chief Executive Officer Martin Craighead said in January. He forecast North American margins would “partially recover” this quarter.

Halliburton Co. and Schlumberger Ltd. are also expected to be negatively affected, Scott Gruber, an analyst at Sanford C. Bernstein & Co. in New York, wrote in a note to investors today.

“Baker is far from alone in feeling the impact of shifting activity in North America and we expect negative guidance from Halliburton given a similar exposure to gas-directed activity,” Gruber wrote.

Reviewing Budgets

“The company is reviewing its budgets for the year and expects to adjust 2012 capital expenditures for the pressure pumping product line to align with current market conditions,” Baker Hughes said in today’s statement.

The company fell 5.8 percent to $45.04 at the close in New York.

Excluding one-times items, fourth-quarter profit was $534 million, or $1.22 a share, missing by 10 cents the average of 31 analysts’ estimates compiled by Bloomberg.

Analysts are forecasting first-quarter earnings of $1.11 a share, the average of 28 estimates compiled by Bloomberg. Halliburton and Schlumberger are the two largest oilfield-services companies by revenue.

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