Baker Hughes (NYSE:BHI), one of the world’s largest oil field companies, is expected to release its Q4 2013 earnings on January 21. While the company has been doing reasonably well of late on the back of operational improvements and a ongoing recovery in the North American market, the fourth quarter results are expected to be weighed down both by disruptions in the company’s business in Iraq, as well as weather-related delays in the North Sea and the United States.  Here is a quick look at what to expect when the company reports earnings Tuesday.
Trefis has a $54 price estimate for Baker Hughes, which is roughly in line with the current market price.
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International Operations: Iraq Disruption Will Pull Down Results
Baker Hughes’ international business had been doing well in recent quarters owing to robust drilling activity in the Middle East and Asia Pacific, as well as expanding global upstream capital spending. However, the company suffered a setback this quarter as it had to suspend operations in Iraq owing to a significant security related disruption at one of its units in the country. While the company has since resumed operations in the region, it mentioned that it had incurred expenses relating to the movement of personnel, as well as security and other non-recurring items, which could impact pretax and after-tax profitability by roughly $80 million for the quarter.
Apart from Iraq, we believe that the firm’s performance in the Middle East should be reasonably strong. In Saudi Arabia for instance, the company has been ramping up its activity in the unconventionals space after mobilizing its second pressure pumping fleet into the region earlier in the year. The company also has a relatively positive outlook for its operations in Kuwait and Abu Dhabi.
North America: Expect Margins To Contract Sequentially
Baker Hughes has indicated that its North American margins would be sequentially lower owing to weather related disruptions towards the end of the fourth quarter. However, we could possibly see an improvement on a year-over-year basis owing to better activity in the Gulf of Mexico as well as efficiency improvements on-shore.
The pressure pumping product line, which contributes almost a quarter of the company’s overall revenues, should continue to witness a recovery. Baker Hughes has undertaken some initiatives to streamline its supply chain for the product line and has also been transitioning a portion of its pumping fleet to operate on cheaper natural gas in addition to diesel. However, pricing for pumping services could remain an issue as the pressure pumping market remains oversupplied with as much as 20% excess capacity. 
The U.S Gulf of Mexico is likely have been bright spot for oilfield companies during the fourth quarter as the average rig count in the region has risen from around 47 in Q4 2012 to about 58 in Q4 2013. Baker Hughes could benefit from a the adoption of some of its newly introduced wireline technologies, as well as from a shift from exploratory drilling to development drilling in the Gulf. This should bode well for its completion and production business. Notes: