Baker Hughes recognized a massive reduction in the value of its oilfield services and equipment businesses and is working on restructuring its operations.
The company has approved a restructuring plan that will cost $1.8 billion, with $1.5 billion reported in its first quarter report, which is coming 22 April.
While restructuring normally means job cuts—already announced by its largest rivals—Baker Hughes only said it planned to “right-size our operations for anticipated activity levels and market conditions.” That plan requires spending $500 million in cash, which it predicted it would earn back in a year.
Baker Hughes will be cutting its capital expenditures for the year by 20% compared to 2019 as the industry hit the brakes on spending. An example of the pullback is the Baker Hughes recent rig count showing 602 rigs working as of 10 April, down by 420 rigs from the year before, with a further decrease expected.
The value of the company’s oilfield service and equipment businesses has taken an equally large hit.
Baker Hughes said it would reduce the value of these key units by $15 billion based on a review of those operations after the oil price crash.
Based on the predicted future revenues and operating profits of those units it concluded, “the carrying value of the oilfield services and oilfield equipment reporting units exceeded their estimated fair value.”
This accounting adjustment does not affect the company’s cash flow or the cash on hand it will need to weather this dismal stretch. Nor is likely to jolt investors. Baker Hughes shares were up in early trading above $13, likely aided by news of a deal to slash production by OPEC+ producers.
For the year, its shares are down 50%. Its values has suffered due to the “current macroeconomic and geopolitical conditions including the collapse of oil prices driven by both surplus production and supply as well as the decrease in demand caused by the COVID-19 pandemic,” a company statement said.
The value of its oilfield services and equipment units, which have been slipping in recent years, plunged this year. As a result of the $15-billion writedown in goodwill—an estimate of how the value of its assets change over time. That total has dropped to $1.4 billion, down from nearly $20 billion as of the end of 2017.
For a company with $53 billion in assets as of the end of last year, the $15 billion writedown represents a significant reduction in its “total equity.” And is a sign of the times.
