ValueAct discloses activist position in Baker Hughes
Activist hedge fund ValueAct Capital declared a 5.1% stake in Baker Hughes (BHI). In the previous parts of the series, we presented an overview of Baker Hughes and a discussion of the Baker Hughes-Halliburton deal. In this part of the series, we’ll take a look at whether Baker Hughes achieved its performance objectives in 2014.
Success from new products
During 2014, BHI’s global products and services group introduced more than 160 new products and services to the market. These new products generated revenue of more than $1 billion in the first year of their launch.
ProductionWave solution is the most impressive innovation that BHI launched in the last year. The product integrates cutting edge artificial lift technologies with production chemicals and remote monitoring services to optimize production in the unconventionals. Baker Hughes installed 5,000 of ProductionWave solutions in 2014. As a result of this, the company’s artificial lift product line saw its fastest growth in 2014.
To increase its share of drilling services in the deepwater market, BHI launched FASTrak. FASTrak reduces reservoir uncertainty and maximizes ultimate recovery by analyzing and extracting samples while drilling. BHI’s share in drilling services has increased, as FASTrak is gaining momentum.
BHI also created the world’s first large-bore plug, SHADOW plug. The product incorporates a disintegrating metallic ball and expands the possibilities of well construction. Sales of SHADOW plug grew exponentially with fourth quarter sales that were higher than sales for the first three quarters combined.
Transforming the pressure pumping business
BHI is transforming its pressure pumping business in North America. The company is modernizing the supply chain and adapting new technologies to improve efficiency in pressure pumping. In the fourth quarter of 2014, the pressure pumping business reported its highest margins since 2012.
Fruits of investments in international operations
International earnings increased from investments made in infrastructure and global supply chain. The company won significant contracts in Brazil, Norway, Angola, and the Middle East. The company also exited some projects where the returns were not satisfactory. Baker Hughes is deploying those resources in more profitable projects, which helped it improve profitability in Iraq, Libya, and Venezuela.
During the fourth quarter, the company delivered the highest volume of year-end product sales. Product sales were up 20% year-over-year (or YoY).
And the result is…
With all these strategies, Baker Hughes achieved the following 2014 performance objectives:
- increased deepwater shares with major wins in Brazil, Angola, and Norway
- strengthened position in the unconventional markets with new technologies like SHADOW plug and transforming pressure pumping business
- establishment of a differentiating position in well production with ProductionWave and through acquisitions
- establishment of a very unique position in the midstream market
- 15% margins in North America
- 20% margins in Latin America
- 12% year-over-year (or YoY) growth in the East
- highest free cash flow of $1.6 billion compared to $1.5 billion last year
Baker Hughes and its peers
In 2014, Baker Hughes reported revenue of $24.6 billion, up 10%. Halliburton Company (HAL) reported revenue of $32.9 billion, up 12%. Schlumberger (SLB), the largest oilfield services company, reported 7% growth over the past year to reach $48.6 billion. SLB, HAL, and BHI are components of the VanEck Vectors Oil Services ETF (OIH). SLB is also a component of the Energy Select Sector SPDR (XLE).
In the next part of the series, we’ll discuss fourth quarter and full year 2014 results of Baker Hughes.