Oilfield services provider Baker Hughes (NYSE:BHI) is set to declare Q4 results next Tuesday, to complete what has been a strong year for the exploration and production (E&P) services industry. Baker Hughes and other service providers have seen revenues soar with strong onshore activity in North America and capacity expansion in countries like Iraq. In December, reports surfaced that the company had managed to win a massive contract with Italian major Eni to drill around 60 wells in the Zubair fields in Iraq.  This could be the second big contract won by Baker Hughes in Iraq in the last year. Baker Hughes’ competitors Schlumberger (NYSE:SLB) and Halliburton (NYSE:HAL) will be releasing their Q4 results over the next few days.
We will look to revise our $71 price estimate for Baker Hughes based on its performance across the major geographies in this quarter. At present, our estimate is at a 45% premium to its current market price.
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North American activity
A major bulk of our $71 price estimate for Baker Hughes comes from its activity in North America. Like other oilfield services players, Baker Hughes is benefiting from the shale boom in the U.S. as operators continue exploration in shale plays across the U.S. despite low gas prices. Notwithstanding growing environmental concerns associated with the practice of hydraulic fracturing and the supply glut in the American gas markets, new players continue to pump in billions of dollars to explore shale plays across the country. 
High oil prices have pushed players to direct efforts towards drilling for liquids in shale plays. With global crude prices remaining stubbornly high throughout 2011 despite economic headwinds from Europe, liquids exploration will continue to rise.
Iraq contracts highlights of international activity
Back in August, Baker Hughes struck a major contract with Russian player LUKOIL to provide drilling and completion services for 23 of its wells in the West Qurna fields in Iraq. (See: LUKOIL Iraq Contract Gives Baker Hughes a Boost in the Middle East) According to reports, the company has followed this with another major contract with Italian player Eni. The latest contract is worth $640 million according to the sources and will cover work related to 60 wells in the Zubair fields.  Oilfield services players are eyeing Iraq’s expansion plans to boost their revenues from the Asia and Middle East region.
Baker Hughes started a 1.3 million sq feet operations base in Basra to target growing E&P activity in Iraq. We also expect exploration efforts to gather pace globally because of high fuel prices.Notes: