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Oilfield Services Stocks: Free Cash Flow Winners and Losers

PART:
1 2 3 4 5 6 7 8 9 10
Part 7
Oilfield Services Stocks: Free Cash Flow Winners and Losers PART 7 OF 10

Why Baker Hughes’ Free Cash Flow Was Negative in 2Q17

Baker Hughes’s free cash flow

In the previous part of this series, we discussed Patterson-UTI Energy’s (PTEN) free cash flow (or FCF). In this article, we’ll discuss Baker Hughes’s (BHGE) free cash flow. In 2Q17, BHGE’s FCF was -$193 million, compared to a massive $3.5 billion FCF in 2Q16. In 2Q16, Baker Hughes’s FCF was helped greatly by a merger termination–related payment from Halliburton (HAL). We discussed the effect of this payment on HAL’s FCF in Part 4 of this series. However, negative cash from operating activities (or CFO), coupled with higher capex, led to a negative FCF in 2Q17 compared to 2Q16 for BHGE.

Baker Hughes’s (BHGE) CFO remained negative in 2Q17, continuing with a negative cash flow trend from 1Q17. BHGE’s CFO was -$64 million in 2Q17—although it did show some improvement over 1Q17 CFO.Why Baker Hughes&#8217; Free Cash Flow Was Negative in 2Q17

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Why did Baker Hughes’s cash flow fall?

Price deterioration in the Middle East–Asia Pacific region, lower offshore cementing and vessel utilization in Brazil and Venezuela, and higher environmental costs in the downstream chemical business affected BHGE’s 2Q17 cash flows negatively. Despite steady revenues, adverse changes in working capital management resulted in negative CFO in 2Q17.

Baker Hughes’s capex

BHGE’s capital expenditure (or capex) rose 84% in 2Q17 over 2Q16. The increase in capex was mainly attributable to revenue generating asset additions to meet increased activity levels in the upstream sector, which means that though high capex is negatively affecting FCF now, higher revenues from this capex in should positively affect FCF in the future. Read more about Baker Hughes in Market Realist’s BHGE, PTEN, and BAS: Did 2Q17 Results Impress Investors?

Free cash flow compared with peers

Basic Energy Services’ (BAS) 2Q17 FCF was -$8.3 million while TechnipFMC’s (FTI) 2Q17 FCF was $87 million. Baker Hughes is 1.02% of the Vanguard Energy ETF (VDE). Since June 30, 2017, VDE has fallen 4% compared to a 13% decline in BHGE’s stock price.

Next, we’ll compare the best and lowest FCF growth OFS companies’ correlation with crude oil.

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