Baker Hughes Announces Second Quarter 2019 Results

“We delivered a solid second quarter 2019 both commercially and operationally. The trends for our longer-cycle businesses remain intact. The Liquefied Natural Gas (LNG) new-build cycle is a strong positive for our company and our international Oilfield Services (OFS) business continues to be very successful. Our outlook for 2019 is unchanged and we remain focused on our priorities of gaining share, improving margins and delivering strong cash flows,” said Lorenzo Simonelli, BHGE Chairman and Chief Executive Officer.

“In the second quarter, we booked $6.6 billion in orders, driven by year-over-year growth in three of our four segments. We delivered $6.0 billion in revenue and adjusted operating income in the quarter was $361 million.

“In Oilfield Services (OFS), we executed on our strategy to grow in key international markets, while in North America our production-levered portfolio is driving growth amid uncertain market conditions. We executed well on previously-announced wins, helping our customers achieve step-changes in efficiency on some of their most important projects.

“In Oilfield Equipment (OFE), we continue to enhance our offerings through Subsea Connect, and we are focused on technology, lowering project costs and delivering for customers. Flexible Pipe System orders were up significantly in the quarter compared to the lows of 2018, a good sign for future revenue growth.

“In Turbomachinery & Process Solutions (TPS), the second quarter saw the acceleration of activity in the LNG market. We have seen approximately 60 Million Tons Per Annum (MTPA) of new capacity reach Final Investment Decision (FID) since the fourth quarter of 2018, and the industry is on track to reach the 100 MTPA we outlined by the end of 2019. Also in the quarter, we delivered strong orders in our on- and offshore production segment, securing important wins in India and Africa. We remain well positioned across multiple market segments, most importantly LNG, as more projects move towards positive FID this year.

“In Digital Solutions (DS), we achieved a major milestone in the quarter to strategically position our digital software business. We announced a joint venture with C3.ai, the premier company in the industrial Artificial Intelligence (AI) space. The partnership will help us deliver AI that is faster, easier, and more scalable to drive outcomes for our customers. By integrating our strong digital capabilities and oil and gas industry expertise with C3’s unique AI solutions, we will accelerate the overall digital transformation of this industry.

“In closing, we executed well in the second quarter, and we are encouraged by strengthening international markets and the strong LNG project pipeline. Going forward, we remain focused on our financial priorities and differentiating ourselves to drive higher returns across our portfolio,” concluded Simonelli.

Quarter Highlights

Customer Wins
BHGE’s OFS segment secured new wins and expanded its scope across existing contracts in the quarter as a result of strong performance. In Norway, the Company was awarded two long-term contracts for downhole monitoring and sand control screens, expanding on an integrated contract award it secured in 2018 with the same customer. In the United Arab Emirates (UAE), BHGE was awarded a long-term contract to supply upper completions and well monitoring for 94 wells.

BHGE’s OFS team also won a multi-year, sole-provider contract for artificial lift in the Gulf of Mexico. This win expands BHGE’s position as the only electrical submersible pump (ESP) supplier working for Integrated Oil Companies (IOC) offshore Mexico. Separately in Malaysia, BHGE secured an integrated well services contract for 22 wells with a large IOC customer, displacing the incumbent. The same customer awarded BHGE a lower completions contract to deploy its new GeoFORM™ sand control technology in the country for the first time.

In North America, BHGE’s OFS segment won a multi-year contract to provide artificial lift solutions to a customer in the Bakken. BHGE’s long-term relationship with the customer and track-record of performance in the basin led to this important win. In Canada, BHGE extended a large production chemicals contract with a long-term customer. Over the past 10 years, BHGE s industry-leading treatments have helped the operator reduce chemicals cost by 70% per barrel of oil produced, while production has grown 500%.

In the Company’s OFE business, BHGE gained traction in its Flexible Pipe Systems product line in the quarter. It secured orders to provide full gas injection, production, water injection and gas lift packages for various pre-salt and post-salt fields in Latin America. Also in the quarter, BHGE secured awards to provide flexible pipe systems for important projects in the Middle East and Asia Pacific regions.

BHGE’s TPS business won an important contract to provide compression and power generation equipment for the development of an important project in southeast Algeria. The reliability and availability of a power supply in a remote area with no grid connection was fundamental to the operator, and BHGE’s proven track record and strong local presence in Algeria were important factors that helped BHGE secure the award.

TPS was also awarded an order to supply a gas turbine-driven generator package for a Floating Production Storage and Offloading system (FPSO) offshore India. BHGE will provide three of its LM2500+ G4 gas turbines to produce over 50 megawatts of power for the FPSO’s operations. These gas turbines have a proven track record in offshore operations, with high reliability and availability, and were optimized to meet the reduced footprint requirements, an important factor in FPSO applications. The turbines also provide enhanced combustion to reduce NOx emissions in support of the customer s low carbon clean-environment efforts.

Technology & Innovation
During the quarter, BHGE’s OFS team successfully deployed its SureCONNECT intelligent downhole system for a large operator in the North Sea. The system enables connection of the upper completion components to the lower completion with hydraulic, electric, or fiber-optic conduits. For the first time, operators can achieve real-time fiber-optic monitoring across the entire wellbore, for the life of the wellenabling them to make data-driven decisions to optimize reservoir performance and proactively mitigate risks such as equipment failures.

The Navi-Drill DuraMax drilling motor is the latest generation of high-performance positive displacement motors from BHGE. This new motor leverages state-of-the-art research and modeling techniques to deliver the most reliable, efficient and power-optimized motor in the market today. For unconventional applications, the motor provides increased horsepower, torque and durability to drill the curve and lateral in one run and drill extended laterals, saving drilling time and cost for customers. The motor is providing improved efficiency and effectiveness, drilling wells faster and improving well construction productivity for customers across North America.

BHGE recently launched its GeoFORM conformable sand management system, which leverages advanced material science to deliver a new approach to sand control- one that expands and conforms to complex well profiles, delivering a new level of sand-control performance with fewer operational requirements.

In the quarter, BHGE’s OFE business officially opened its Subsea Center of Excellence (CoE) in Montrose, Scotland. This world-class COE will deliver engineering, manufacturing, testing and services to advance deepwater technology for customers. Repurposing this campus is an important milestone for BHGE globally, enabling complete solutions-from design to delivery-from one location servicing customers globally. The COE is also home to the Aptara™ design center, dedicated to the development of the Aptara Totex-lite subsea system. The Aptara suite of products is a cornerstone of the Company s Subsea Connect approach, featuring a range of lightweight, modular technology solutions re-engineered to cut total cost of ownership in half.

OFE also signed a memorandum of understanding with Saudi Aramco to create a new facility in the Kingdom of Saudi Arabia to manufacture non-metallic materials. BHGE will leverage composites and technologies to accelerate non-metallics adoption in the energy industry. The partnership to develop nonmetallic products will benefit a wide range of industries and support further innovation and manufacturing in Saudi Arabia.

In DS, BHGE announced the joint venture with C3.ai, whose AI platform is quickly becoming the enterprise standard across a broad range of industries. Using this technology as well as BHGE’s oil and gas domain knowledge and existing digital suite, the companies will deliver C3’s technology to oil and gas customers and collaborate on new AI applications specific for oil and gas outcomes. BHGE will also offer the combined strength of oil and gas and AI expertise directly to customers, deploying teams of data scientists and oilfield experts into customer environments to best leverage the C3 portfolio and deliver AI solutions that meet specific customer needs.

Executing for Customers
The strategic partnership between BHGE and ADNOC Drilling has delivered strong performance since launching operations in January of this year. The teams have mobilized four rigs and drilled more than 100,000 feet with 97% drilling efficiency. On the first eight wells, ADNOC Drilling saved more than 88 days of drilling time. BHGE will continue to work closely with ADNOC Drilling to support ADNOC’s 2030 Smart Growth strategy.

BHGE has delivered substantial progress as part of its integrated well services contract for Equinor. In the first half of 2019, BHGE fully integrated eight drilling units in addition to the two existing units. The Company also drilled more than 100 thousand meters with “best-in-class” performance. BHGE utilized a remote operations model for part of the project, leveraging automation to improve efficiency, standardize processes and improve safety.

In the second quarter, BHGE’s TPS business achieved an important milestone for the Tengizchevroil project, the completion and shipment of the fifth and final power generation module that will generate 130MW of power for the project. Each module is equipped with a Frame 9 gas turbine and is built to operate in extreme conditions. Leveraging BHGE s modular, plug and play approach enables lower installation costs and minimized risks during start up at the customer site.