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Outlining BHI’s Growth Path and Cost Restructuring Plans

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Sep. 12 2016, Updated 11:04 a.m. ET

Cost restructuring

In the first half of 2016, Baker Hughes (BHI) restructured its leadership team and realigned its organizational design. BHI aims to adopt a full service model and use a broader sales channel efficiently. BHI’s management expects these actions to result in ~$450 million of annualized cost savings.

While the majority of cost savings are expected to arise out of a workforce reduction of 3,000 positions, BHI also reduced depreciation and amortization expenses as a result of asset impairments. In 2Q16, BHI recorded $1.1 billion (pre-tax) in asset impairments, workforce reductions, facility closures, and contract termination charges. So BHI is on its way to achieving $500 million in annualized cost savings objectives that it had disclosed in May. Schlumberger (SLB) recorded $646 million pre-tax restructuring charges related to employment streamlining and other asset base restructuring in 2Q16.

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Baker Hughes’s project awards

In 2Q16, BHI received a number of projects that can fuel Baker Hughes’s growth. These include:

  • a five-year contract for completion systems in Kazakhstan
  • a three-year completions and wellbore intervention award in Southeast Asia
  • a three-year drill bits contract in India
  • a five-year drilling services contract in Kuwait
  • a three-year artificial lift systems contract in Oman

In 2016, Baker Hughes has won contracts for upstream and downstream chemicals projects in North America, Europe, Africa, the Middle East, and Southeast Asia. BHI is 0.12% of the SPDR S&P 1500 Value Tilt ETF (VLU). The energy sector makes up 11.2% of VLU.

Next, we’ll discuss Baker Hughes’s indebtedness.

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