This site requires a more recent version of Adobe Flash Player to function properly.
Go here to get Flash.
Trefis's graphical modelling tools require Flash, but here's a preview of some of the content you'll see once
Flash is enabled:
Investment Overview for Baker Hughes Incorporated (NYSE:BHI)
${header:potential}
Below are the key drivers of Baker Hughes' value that present opportunities for upside or downside to the current ${trefisprice}:
North America
- Rig Count in North America: The rig count in North America has risen sharply from 1311 in 2009 to 2302 in 2011. In 2012 the number remained relatively flat. We expect this number to continue to increase by gradually grow by around 4% every year towards the end of the Trefis forecast period. The increased rig count over the past few year is a result of the surge in upstream exploration activity for oil, gas and unconventional hydrocarbons which include shale and tight oil. Upstream exploration is directly linked to the price of oil and gas as investments are linked to the cash flows of producers such as Exxon Mobil and Shell. In case exploration efforts in North America pick up as a result of a surge in oil and gas prices to an extent that the rig count increases by around 10% every year, there could be an upside of 30% to our estimate of Baker Hughes stock. Conversely if the rig count increases at only 2% per annum to reach approximately 2,600 rigs by the end of Trefis forecast period, there could be a downside of around 7% to the ${trefisprice}.
- Revenue per Rig: The revenue per rig for Baker Hughes in North America has increased from $3.68 million/rig in 2008 to $4.75 million/rig in 2012. We expect this figure to grow by 4.5% in 2013 and at a long term growth rate of around 3 to 5%. A multitude of factors contribute to this trend including the increasing shift towards the exploration of unconventional sources which require complex technology and the escalation in logistical and technical complexity of explorations in remote locations and deepwater finds. If the forecast revenue figure rises higher by around 10% per annum then there could be an upside of around 30% to our estimate for Baker Hughes stock. On the other hand, there could a downside of around 8% to ${trefisprice} if the Revenue per Rig increases by a marginal 2% per annum over the Trefis forecast period.
For additional details, select a driver above or select a division from the interactive Trefis split for Baker Hughes at the top of the page.
${header:summary}
Baker Hughes provides upstream drilling and exploration services for oil and gas production activities required by firms such as Exxon Mobil and National Oil Companies (NOCs) like Saudi Aramco to explore, develop and service their oil resources. The company has an extensive geographical coverage, conducting business in over 80 countries and provides products and services for oil and gas exploration, drilling and post-drilling services.
${header:sourcesofvalue}
We believe the North America division of Baker Hughes is more valuable than the other geographical divisions primarily because of
The large market for exploration and production services in North America
North America accounts for approximately 60% of the total rig count published by Baker Hughes. While the Revenue per Rig is quite low in this region, the size of the market in terms of the number of rigs exceeds the combined size of the other three geographic divisions of Latin America, Europe / CIS / Africa and the Middle East / Asia.
The push towards unconventional sources
The strong push towards exploiting unconventional sources of hydrocarbons such as shale gas, tar sands and heavy oil in North America increases the potential for additional revenues to Baker Hughes as exploration for these sources requires complex technology and more intensive processes. The shift has also increased the service intensity of the rigs in North America that should result in higher Revenue per Rig in the region.
${header:trends}
Exploration of deepwater and other remote sources of oil and gas
Over the past few years an increasing number of major oil and gas finds have been in deepwater and other remote locations such as the CIS and Iraq. The exploitation of these sources adds tremendous logistical and technical complexities to the exploration projects that translate into revenues for upstream products and services firms such as Baker Hughes.
The marginal reduction in the number and size of new finds
The IEA estimates that non-OPEC oil production peaked in 2010. This means that future oil and gas finds will get increasingly rarer and the size of the discoveries will decline which will lead to higher exploration and drilling costs to maintain historical outputs of oil.
The oversupply of natural gas in North America
Natural gas prices continue to remain suppressed because of the perceived high storage levels and the oversupply of gas in the market. The lagging demand will translate into lower investments in natural gas exploration in the short term.
New oil and gas discoveries in Brazil and other Latin American countries
7 of the 10 largest oil and gas discoveries of 2008 occurred in Latin America including several multi-billion barrel offshore finds in Brazil. These discoveries are attracting investments from local oil companies such as Petrobas as well as foreign oil majors such as Chevron and Petrochina. Exploration in this region is expected to improve Baker Hughes' revenue and profit outlook in the region
Exploration for unconventional sources in Europe, Latin America, the Middle East and Asia
Exploration for unconventional sources such as shale and tight gas are expected to pick up in Argentina, Mexico, Poland, China and Saudi Arabia over the next 1-5 years resulting in higher revenues and operating profits for Baker Hughes in these regions.
Industry consolidation and higher service intensity in North America
The recent downturn has resulted in the consolidation of the upstream products and services industry in North America as many smaller players failed to survive the competitive pricing by established players such as Baker Hughes. In addition to this, the shift towards unconventional activity and higher services intensity favors larger players which should result in better pricing for Baker Hughes.
Efforts to arrest decline rates in ageing fields
Oil firms are investing in technology to help them reduce the decline rates seen in major fields over their lifetime. Pemex has been engaged in efforts to arrest the decline in its Canterall fields while Saudi Aramco has also made it a priority to reduce the decline in its fields at 2-3% per annum.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on:
DCF MethodologyView All Help Topics