Baker Hughes Barrels in 3Q Net Income of $428.9MM

Baker Hughes has announced that net income for the third quarter 2008 was $428.9 million or $1.39 per diluted share compared to $389.1 million or $1.22 per diluted share for the third quarter 2007 and $379.3 million or $1.23 per diluted share for the second quarter 2008. Net income for the second quarter of 2008 includes a net charge of $0.13 per diluted share relating to the settlement of litigation.

Revenue for the third quarter 2008 was $3,009.6 million, up 12% compared to $2,677.6 million for the third quarter 2007 and up less than 1% compared to $2,997.5 million for the second quarter 2008. North America revenue for the third quarter 2008 was up 15% compared to the third quarter 2007 and up 3% compared to the second quarter 2008. Outside of North America, revenue for the third quarter 2008 was up 11% compared to the third quarter 2007 and down 1% compared to the second quarter 2008.

Disruptions from the hurricanes in the Gulf of Mexico during the third quarter 2008 negatively impacted earnings by $0.11 per diluted share. In addition, third quarter results include a $0.10 per diluted share tax benefit, which is discrete to the quarter and not expected to recur.

Chad C. Deaton, Baker Hughes chairman, president, and chief executive officer said, "Results in the third quarter improved compared to the same period a year ago led by the strong performance of our product lines in Latin America and in North America land. Excluding the impact of the hurricanes, margins would have been higher sequentially.

"The long-term outlook remains favorable; however, the near-term outlook has become less certain. Our customers will factor lower commodity prices and slower global demand growth into their budgets and a lack of credit may impact customer spending.

"In North America, the current lack of readily available commercial credit combined with increases in natural gas production in excess of demand growth will likely result in decreased gas drilling into next year. However, a meaningful share of our North America revenue, from our oilfield chemical and artificial lift product lines, supports production-related activities and is less exposed to a decrease in natural gas-directed drilling. We continue to believe that a significant decline in gas drilling activity would, in a matter of quarters, bring supply and demand back into balance resulting in subsequent increases in gas-directed drilling.

"We expect that spending outside North America will continue its multi- year expansion, although more modestly in 2009 than in recent years. The global oil market remains tight by historical standards despite the sharp drop in oil prices, and the energy industry remains challenged to develop adequate oil and natural gas supplies to offset current declines in existing fields.

"Today, Baker Hughes has a leading portfolio of technologies, a highly- skilled workforce, a solid balance sheet, a strong credit rating, and an expanding international infrastructure. Our company is well positioned to manage through the near-term issues, maintain our investment in the people, technology and infrastructure necessary to support our long-term growth objectives, and emerge as a stronger competitor with outstanding growth prospects."

During the third quarter of 2008, debt increased $9 million to $1,631 million, and cash and short-term investments increased $55 million to $1,127 million as compared to the second quarter of 2008. In the third quarter 2008, the company's capital expenditures were $300 million, depreciation and amortization expense was $158 million and dividend payments were $46 million.

During the third quarter of 2008, the company repurchased 538,900 shares of common stock at an average price of $71.26 per share for a total of $39 million. At the end of the third quarter of 2008, the company had authorization remaining to repurchase $1.2 billion in common stock.

Oilfield Operations

Oilfield Operations revenue was up 12% in the third quarter 2008 compared to the third quarter 2007, and was flat sequentially compared to the second quarter 2008. Profit before tax was up 4% compared to the third quarter of 2007 and down 3% sequentially compared to the second quarter of 2008. The pre-tax operating margin in the third quarter 2008 was 22% compared to 24% in the third quarter of 2007 and 23% in the second quarter 2008.

Hurricane Impacts

We estimate that the combined negative impact of Hurricanes Gustav and Ike was approximately $78 million in revenue and $50 million in profit before tax or $0.11 per share. The impact on North America was approximately $55 million in revenue and $39 million in profit before tax or approximately $0.09 per share. The balance of the impact, $23 million in revenue and $11 million in profit before tax or approximately $0.02 per share, was associated with export orders which were delayed from the third quarter 2008 into the fourth quarter 2008. The impact on the Drilling and Evaluation segment was approximately $44 million in revenue and $27 million in profit before tax and the impact on the Completion and Production segment was approximately $34 million in revenue and $23 million in profit before tax.

Drilling and Evaluation

Drilling and Evaluation revenue was up 15% in the third quarter 2008 compared to the third quarter 2007, and up 2% sequentially compared to the second quarter of 2008. Profit before tax in the third quarter 2008 was down 3% compared to the third quarter of 2007 and down 6% compared to the second quarter 2008. The pre-tax operating margin in the third quarter 2008 was 22% compared to 26% in the third quarter 2007 and 24% in the second quarter 2008.

Completion and Production

Completion and Production revenue was up 10% in the third quarter 2008 compared to the third quarter 2007 and down 1% sequentially compared to the second quarter 2008. Profit before tax in the third quarter 2008 was up 12% compared to the third quarter 2007 and flat compared to the second quarter 2008. The pre-tax operating margin in the third quarter 2008, the third quarter of 2007 and the second quarter 2008 was 22%.

North America

North America revenue increased 15% in the third quarter 2008 compared to the third quarter 2007 and increased 3% compared to the second quarter 2008. In North America, comparing the third quarter 2008 to the third quarter 2007, revenue from our U.S. land operations increased 25% compared to a rig count which increased 11%; U.S. offshore revenue decreased 14% compared to a rig count which decreased 5%; and Canada revenue increased 12% compared to a 25% increase in the rig count. Adjusting for the negative impact of Hurricanes Gustav and Ike, North America revenues in the third quarter 2008 would have increased 20% compared to the third quarter of 2007 and would have increased 7% compared to the second quarter 2008.

Profit before tax in the third quarter 2008 was up 2% compared to the third quarter of 2007 and down 3% compared to the second quarter 2008. The pre-tax operating margin in the third quarter 2008 was 24% compared to 27% in the third quarter 2007 and 26% in the second quarter 2008. Adjusting for the negative impact of Hurricanes Gustav and Ike ($39 million profit before tax or $0.09 per share), pre-tax operating margins in the third quarter 2008 would have been approximately 26%.

The improvement in North America revenue was led by our Completion and Production segment and directional drilling.

Latin America

Latin America revenue increased 19% in the third quarter of 2008 compared to the third quarter of 2007 and compared to an 8% increase in the rig count, and increased 7% in the third quarter 2008 compared to the second quarter 2008 and compared to a 1% increase in the rig count.

Profit before tax in the third quarter 2008 was up 5% compared to the third quarter of 2007 and up 17% compared to the second quarter 2008. The pre-tax operating margin in the third quarter 2008 was 18% compared to 20% in the third quarter 2007 and 17% in the second quarter 2008. Operating profit was negatively impacted by start-up costs associated with the significant contract wins announced last quarter in Brazil and Mexico.

The improved revenue in Latin America versus the same period last year was led by directional systems in Brazil and Colombia; completion systems in Mexico and Venezuela; and drill bits in several countries. In Colombia we began work on our first integrated operations contract in that country.

Europe Africa Russia Caspian

Europe, Africa, Russia, and Caspian revenue increased 9% in the third quarter 2008 compared to the third quarter 2007, and decreased 3% sequentially compared to the second quarter 2008. Russia and Caspian area revenue was flat in the third quarter 2008 compared to the third quarter 2007, and decreased 8% sequentially compared to the second quarter 2008. Europe revenue was up 13% in the third quarter 2008 compared to the third quarter 2007 and compared to a decrease of 6% in the North Sea rig count; and flat compared to the second quarter 2008 and compared to an increase of 2% in the North Sea rig count. Africa revenue was up 11% in the third quarter 2008 compared to the third quarter 2007 and compared to a 4% decrease in the rig count and down 6% compared to the second quarter 2008 and compared to a 5% decrease in the rig count.
Profit before tax in the third quarter 2008 was up 18% compared to the third quarter of 2007 and down 5% compared to the second quarter 2008. The pre-tax operating margin in the third quarter 2008 was 23% compared to 21% in the third quarter 2007 and 24% in the second quarter 2008.

The improved revenue in the region, compared to the year ago quarter was led by all product lines in Norway, drilling and evaluation in Libya, and completion systems and wireline in Kazakhstan. In the third quarter 2008 we were awarded over $800 million in contract awards for future work, including a $450 million award for multiple product lines for BP Norway.

Middle East Asia Pacific

Middle East Asia Pacific revenue increased 8% in the third quarter 2008 compared to the third quarter 2007 and decreased 2% sequentially compared to the second quarter 2008. Middle East revenue was up 15% in the third quarter 2008 compared to the third quarter 2007 and compared to a 5% increase in the rig count. Revenue was flat in the third quarter 2008 compared to the second quarter 2008. Asia Pacific revenue was up 3% in the third quarter 2008 compared to the third quarter 2007 and compared to a 6% increase in the rig count; and down 3% compared to the second quarter 2008 and compared to a decrease of 1% in the rig count.

Profit before tax in the third quarter 2008 was down 12% compared to the third quarter of 2007 and down 6% compared to the second quarter 2008. The pre-tax operating margin in the third quarter 2008 was 19% compared to 23% in the third quarter 2007 and 20% in the second quarter 2008.

The improvement in revenues from the region in the third quarter 2008 compared to the third quarter 2007 was led by our Drilling and Evaluation segment in Saudi Arabia and India, the Completion and Production segment in Egypt and sales of various other product lines in Oman, Pakistan, Yemen, Brunei, Malaysia, Singapore and Vietnam.

In the quarter we were awarded several contracts for future work, including the artificial lift and completion systems for the Manifa project in Saudi Arabia; drilling fluids and completion systems for Cairn in India; wireline for eight exploration rigs for ONGC India; and oilfield chemicals for Qatar Gas.
 

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