Halliburton, Baker Hughes Profit as They Plan for Downturn

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Halliburton Co. and Baker Hughes Inc., the oilfield-services companies that agreed to merge in November, reported higher earnings for the last quarter of 2014 as they prepare for a downturn in the industry.

Even as they beat analysts’ profit estimates, the second-and third-largest service providers are reducing their workforces and seeking to lower costs after oil prices fell 46 percent last year. Following 9,000 jobs eliminated last week by Schlumberger Ltd., Baker Hughes expects to cut 7,000 positions in the first quarter, Chief Financial Officer Kimberly Ross said. Halliburton, which has announced 1,000 dismissals, said it expects its cutbacks to be “in line” with competitors by the end of this quarter.

Halliburton announced the $34.6 billion acquisition of Baker Hughes in November, after the target’s share price dropped by almost a third. U.S. producers are expected to reduce spending as much as 35 percent this year in response to a 42 percent decline in West Texas Intermediate oil prices during the last three months of 2014. A backlog of work helped Halliburton and Baker Hughes boost profits for the quarter.

“Both Halliburton and Baker Hughes put up very strong quarters but that was the top, at least for now,” James West, an analyst at Evercore ISI in New York who rates both companies a buy and doesn’t own the shares, said in a phone interview. “We’re about to head into a pretty rough first half of 2015.”

Halliburton’s fourth-quarter net income rose to $901 million, or $1.06 a share, from $793 million, or 93 cents, a year earlier, the Houston-based company said in a statement. After cutting jobs in the Eastern Hemisphere last month, similar actions will come to North America as activity there falls “more sharply,” President Jeff Miller told analysts and investors Tuesday on a conference call.

Shares Rise

Excluding one-time items, per-share earnings were $1.19, exceeding the $1.10 average of 33 analysts’ estimates compiled by Bloomberg. Sales rose 15 percent to $8.77 billion, short of the $8.79 billion average of 25 estimates. Halliburton rose 1.8 percent to $39.83 at the close in New York.

Halliburton reported a $129 million cost during the fourth quarter “to temper the impact of anticipated activity declines.” The company expects to take a restructuring charge in the first quarter, Chief Financial Officer Christian Garcia said on the call.

Halliburton is the world’s largest provider of hydraulic fracturing, a technique that blasts water, sand and chemicals underground to free trapped oil and natural gas. Pricing for fracking in North America is expected to fall 20 percent by the end of this year, according to PacWest, a subsidiary of IHS Inc.

Exploration and production customers have so far cut their spending budgets by as much as 30 percent for this year, Chief Executive Officer Dave Lesar said on the call.

Job Cuts

Earlier, Baker Hughes reported quarterly per-share earnings excluding one-time items that beat the $1.07 average of 29 analysts’ estimates. The company said Tuesday it expects to cut spending by about 20 percent. The shares gained 1.2 percent to $57.26.

“Activity was so strong to close out 2014,” Andrew Cosgrove, an analyst at Bloomberg Intelligence, said in a phone interview before the results were released. “It may take a little while for the full effect of service cost declines to be felt.”

Schlumberger, the largest oilfield-services company, announced Tuesday it will pay $1.7 billion for a stake in Eurasia Drilling Co., Russia’s largest driller. Last week, the company said it plans to take market share from its two largest competitors if the Halliburton-Baker Hughes deal closes.

Halliburton said its acquisition of Baker Hughes is still expected to close in the second half of the year.

“We are going to focus on maintaining our market share,” Lesar said. “We’re not going to get distracted. I’m not going to permit it to happen.”

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