How Does Baker Hughes Plan To Deal With The Ongoing Commodity Slump?

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Baker Hughes

Baker Hughes (NYSE:BHI), the world’s third largest oilfield services company, is among the several oil and gas companies that have been hit by the commodity downturn over the last two years. The company’s revenue and EBITDA dropped more than 35% and 30%, respectively, in 2015 due to the weakness in commodity prices throughout the year. As a result, the company’s stock that traded at its all-time high of $75 per share in July 2014, when the oil slump started, tanked to roughly $37 per share in February this year, due to the persistently low commodity prices.

To add to this, the merger between Halliburton and Baker Hughes, which was announced in November 2014, was called off in May of this year due to the inability of the two companies to obtain regulatory approvals for the deal. While the Houston-based company received a termination fee of $3.5 billion from Halliburton, it realized that it had to deal with the down-cycle all by itself. Thus, without wasting much time, Baker Hughes devised a three-point strategy to manage its deteriorating financial condition.


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As part of this strategy, the oilfield service provider aims to improve its operational efficiency by right-sizing its organizational structure and controlling its operational costs. In this quest, the company has restructured its leadership team and reduced its workforce to fit the market conditions. As a result of these structural changes, the company expects to realize cost savings of $500 million by the end of this year.

Secondly, Baker Hughes plans to build a go-to-market strategy for its product offerings which will enable it to maintain its leadership position of “Product Innovator.” The company will work towards rationalizing a full-service model to enhance its return on invested capital and build new and more diversified sales channels for its product and technology, including tailored operating models. For this, the company plans to hold selective presence in its US onshore pressure pumping business, and continue to expand its operations wherever it finds a suitable opportunity.

Lastly, Baker Hughes plans to optimize its capital structure by buying back shares, and repaying and refinancing its long-term debt obligations, while ensuring its financial liquidity. To this effect, the company targets to repurchase $1.5 billion worth of its common stock, repay $1 billion of long-term debt, and refinance its $2.5 billion credit facility by the next couple of quarters.

Baker Hughes’ Strategy To Weather The Commodity Downturn


Although the company has been rushing from pillar to post to sustain its margins in the weak price environment, we figure that its earnings will remain low for the remaining half of 2016. This is because unlike its counterparts, who believe that the commodity markets have bottomed out, Baker Hughes anticipates the softness in commodity markets to continue through 2016.

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1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Baker Hughes

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