Baker Hughes Still Worth $71 Though Fracking Concerns Weigh on Stock

Oilfield services provider Baker Hughes (NYSE:BHI) has seen its stock tumble over the past two weeks as investors were spooked by a slight decline in North American rig count as well as a report that found samples of chemicals used in hydraulic fracturing in groundwater samples in Wyoming. Baker Hughes and competitors such as Schlumberger (NYSE:SLB) have seen earnings from North America grow tremendously over the last few years because of the shale gas boom in the states.

We have a $71 price estimate for Baker Hughes which is at a 40% premium to its current market price.

Click here for our full analysis of Baker Hughes.

Rig count falls

The rig count in North America fell by 6 over the past week to 1987 rigs, according to a Baker Hughes report. ^[1] The count is generally a very good indicator of exploration and production activity in a region. The count fell mainly in Louisiana and North Dakota while increasing in Colorado, West Virginia and California. Rig count in the U.S. has grown since 2008 as shale operators have looked to exploit deposits in the U.S. to produce natural gas and associated liquids.

Fracturing is a critical technique in the extraction of shale gas that pumps millions of gallons of chemical-laced water into wells, and has long been looked at as potentially hazardous to groundwater. The recent report from the Environmental Protection Agency links chemicals found in water samples in Wyoming, and may be used to introduce new regulations on the process. ^[2] The findings of the draft report and the motives of the EPA have been questioned by industry players.

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1. Weekly US oil and gas rig count drops by 6, Associated Press [↩]
2. Wyoming’s Tainted Water Pressures EPA on to Act on Gas Fracking, Bloomberg [↩]