Houston-based Baker Hughes said its fourth-quarter profit dropped 6 percent because of higher costs and logistical problems with its hydraulic fracturing business.
Net income for the global oil field services and equipment provider fell to $314 million in the three-month period ending Dec. 31 from $335 million in the same quarter of 2010. Earnings per share fell to 72 cents, down 5 cents from a year earlier.
Meanwhile, the company recorded a 22 percent increase in revenue, up to $5.4 billion from $4.4 billion in the fourth quarter of 2010.
For the full year of 2011, Baker Hughes earned $1.7 billion on revenue of $19.8 billion, up from $812 million on $14.4 billion in 2010 revenue.
In the fourth quarter, Baker Hughes’ North American business encountered shortages of materials and difficulties getting equipment to job sites, CEO Martin Craighead said. He said key materials for hydraulic fracturing jobs, including sand and gel, were in short supply, causing their prices to rise and hindering the company’s transport efficiency.
Hydraulic fracturing flushes a mix of water, sand and chemicals at high pressure into deep wells to unlock fossil fuels from rock formations. Demand for fracturing services has boomed in recent years with the rapid growth of domestic natural gas production from dense shale formations.
A shortage of sand and of rail cars to transport the materials for oil field work is hitting the industry. Baker Hughes, which purchased hydraulic fracturing business BJ Services in 2010, has been hit particularly hard, said J. David Anderson, a senior analyst for J.P. Morgan.
“It’s becoming a fairly chronic issue throughout oil and liquids basins,” Anderson said. “It seems to be most acute with Baker right now. The BJ platform that they purchased wasn’t able to be scaled up to meet today’s logistics.”
Craighead said the company also added new crews to its fleet, an additional cost that weighed on its bottom line.
He said the North American results were disappointing but that the setbacks were temporary. Craighead added that the company is making investments to improve efficiency of its fleets, sand storage facilities and freight shipments.
“We have absolutely no doubt that we’ll get these issues fixed,” he said. “The underlying business in North America is very strong. We have every reason to be bullish on the long-term prospects of this market.”
Chief Financial Officer Peter Ragauss said the company expects the rig count in North America to grow 5 percent to 2,409 in 2012. However, the growth will occur in oil fields, while the number of rigs operating in natural gas fields will decline, Ragauss said.
Because natural gas prices have fallen while oil prices have been high, operators have begun moving out of natural gas fields and into oil fields. The average number of gas rigs fell by 78 between the fourth quarters of 2010 and 2011, he said.
Meanwhile, oil rigs jumped by 405.
“The oil rig count is higher than it has been in 20 years,” Craighead said. “Assuming oil prices remain steady, we see the increase in oil rates offsetting the loss in gas rates.”