Baker Hughes Incorporated (BHI) faces higher-than-average operational risk due to a decline in spending caused by falling commodity prices and continued operational risk from the yet-to-complete restructuring of its legacy BJ Services business, says Edward C. Muztafago, Director of Investment Research at Societe Generale.
“If you look at North America, the biggest challenge that Baker has run into has been restructuring the legacy BJ Services business, and it required a lot of investment and a lot of change in both contract structure and just sort of basinal footprint within North America. Now they have certainly made some tangible progress there, but again, it’s not all done, so there is always a bit of risk there associated with that,” Muztafago said.
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But not all is terrible news for BHI, Muztafago says. The multiservice oil and gas company could see the Norwegian exposure result in some good tailwinds for the company, but he adds that internationally, the declining spending could result in the delaying of projects.
“Baker still has to really penetrate the BJ Services and legacy BJ Services entity in the places like the Middle East and Asia Pacific, which have been really key regions for development activity for multiservice companies globally. And just given the bit of a slowdown that we are seeing right now, or let’s kind of call it slowdown in growth, that could be a little bit more of a challenge as you potentially see some new projects get pushed farther down the road,” Muztafago said.
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