Baker Hughes announced that net income for the third quarter 2009 was $55 million or $0.18 per diluted share compared to $429 million or $1.39 per diluted share for the third quarter 2008 and $87 million or $0.28 per diluted share for the second quarter 2009. Net income for the third quarter 2009 includes expenses of $38 million before tax ($0.08 per share) associated with reorganization, severance and acquisition costs, and an increase to our allowance for doubtful accounts.
As previously reported, net income for the second quarter 2009 included expenses of $54 million before tax ($0.13 per share) comprised of $16 million ($0.04 per share) associated with employee severance and reorganization costs and $38 million ($0.09 per share) associated with increasing our allowance for doubtful accounts.
Revenue for the third quarter 2009 was $2.23 billion, down 26% compared to $3.01 billion for the third quarter 2008 and down 4% compared to $2.34 billion for the second quarter 2009.
Chad C. Deaton, Baker Hughes chairman, president and chief executive officer, said, "Third quarter North America operating margins rebounded from the low set in the second quarter of 2009. Aggressive cost cutting in the first half of 2009 enabled us to absorb additional price decreases and improve profitability on modest activity increases.
"International results were disappointing with revenue less than expected and price discounting greater than expected. Our operating profit margin was also impacted by the extra costs we are carrying to assure a smooth organizational transition we announced in May 2009. Given the progress we are making on this company transformation these additional costs should largely be behind us as we enter 2010.
"Looking forward, gas-directed drilling in North America is gradually increasing and we believe this trend will likely continue through 2010. Internationally, we believe that customer spending reached its low point this quarter and that forecasts for increasing economic growth, particularly in China, India and the Middle East, combined with modest spare production capacity are supporting higher oil prices and laying the foundation for increased spending in 2010.
"We are continuing to make good progress on the pending BJ Services transaction. Regulatory filings have been made in the US and in some international jurisdictions, and our preliminary proxy statement has been filed and is being reviewed by the SEC. We have received a 'second request' from the Department of Justice which is limited in product and geographical scope. As a result of the second request, we now project that the transaction will close in the first quarter of 2010.
"With the pending addition of BJ Services, we expect to significantly advance our competitiveness as we improve our customer intimacy, operational effectiveness, and product portfolio."
During the third quarter 2009, debt decreased $23 million to $1.81 billion and cash and short-term investments increased $125 million to $1.49 billion as compared to the second quarter 2009. Capital expenditures were $222 million, depreciation and amortization expense was $177 million and dividend payments were $47 million in the third quarter 2009.
Revenue in North America reflected changes in the North America rig count which was down 52% year-over-year. The sequential quarterly improvement was primarily driven by a 13% increase in the North America rig count, where a strong seasonal rebound in Canada was partially offset by a 32% decrease in offshore drilling as offshore activity slowed during the Gulf of Mexico hurricane season.
The sequential improvement in profit before tax and profit before tax margins demonstrated the advantages of our early and aggressive cost cutting in the first half of 2009 which overcame incremental price discounting in the third quarter 2009.
During the quarter, and in collaboration with a major U.S. independent operator, our US Land geomarket team successfully installed the first 24-stage FracPoint(TM) EX open hole isolation completion system in the Williston Basin.
In addition, we launched our IntelliFrac(TM) service, an integration of our advanced micro-seismic services with state-of-the-art fracturing and production enhancement services from BJ Services. This combined offering of services enables operators to monitor fracture dimensions during stimulation treatments and allows real-time control of fracture operations.
Revenue declined year-over-year as increased revenue from the Mexico / Central America geomarket was offset by reduced revenue from the Venezuela and Argentina / Bolivia / Chile geomarkets. Revenue declined sequentially primarily due to lower activity in the Venezuela geomarket. Operating profit margin in the third quarter was adversely impacted by incremental costs in the Mexico / Central America and Brazil geomarkets associated with start-up activity, and higher labor costs in the Argentina / Bolivia / Chile geomarket.
During the quarter we were awarded a contract for intelligent completions for the pre-salt Tupi field in Brazil valued in excess of $50 million.
Also during the third quarter, our newly-deployed BEACON center for Mexico became fully operational, providing permanent real-time monitoring visibility of ongoing operations allowing Baker Hughes experts from around the world to provide support on operational and technical challenges as they arise.
Europe, Africa, Russia and Caspian
Revenue declined year-over-year in all geomarkets with the exception of Angola, with the largest declines in the Russia, UK and Norway geomarkets. Sequentially, revenues declined as the increases in the Norway, Sub Sahara Africa, and Caspian geomarkets were more than offset by declines in the UK, Russia, Continental Europe, Angola and Libya geomarkets.
Baker Hughes drilled and completed the first well using our 9-5/8" steerable liner drilling system for a client in Norway. The system features INTEQ directional drilling systems, Hughes Christensen drill bits and Baker Oil Tools completion systems.
In Azerbaijan we were awarded a $300 million contract in the third quarter 2009 for directional drilling, formation evaluation and completion systems. Work is expected to commence in January 2010.
Middle East Asia Pacific
The year-over-year revenue decline in the region was in line with the decline in the rig count, with higher revenue from the Australasia and India/Southwest Asia geomarkets being offset by lower revenue from all other Middle East Asia Pacific geomarkets. Compared to the second quarter 2009, revenue increases in the India / Southwest Asia, Indonesia, and Australasia geomarkets were more than offset by reduced revenue in the North Asia, Egypt, Gulf and Southeast Asia geomarkets.
During the quarter we were awarded drilling, evaluation and completion contracts for a twelve well deepwater exploration program for a consortium of six major integrated oil companies operating in Indonesia.
In the Gulf geomarket, we achieved a new milestone in reservoir characterization, performing one of the largest ever onshore 3D Vertical Seismic Profiling jobs for a major National Oil Company.
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