Record Fourth Quarter for Baker Hughes

Income from continuing operations for the year 2005 was $874.4 million or $2.56 per diluted share, compared to $525.3 million or $1.57 per diluted share for the year 2004.

Net income for the fourth quarter 2005 was $257.9 million or $0.75 per diluted share, compared to $179.6 million or $0.53 per diluted share for the fourth quarter 2004 and $221.9 million or $0.65 per diluted share for the third quarter 2005. Net income for the year 2005 was $878.4 million or $2.57 per diluted share, compared to $528.6 million or $1.58 per diluted share for the year 2004.

Revenue for the fourth quarter 2005 was $1,989.4 million, up 19% compared to $1,672.4 million for the fourth quarter 2004 and up 11% compared to $1,784.8 million for the third quarter 2005. Revenue for the year 2005 was $7,185.5 million, up 18% compared to $6,079.6 million for 2004.

Chad C. Deaton, Baker Hughes chairman and chief executive officer, said, "Baker Hughes posted record results in the fourth quarter and for the year 2005 as a whole. North American land drilling continued at high levels and offshore operations recovered from the Gulf of Mexico hurricanes. The international market remained strong, and the Middle East, Asia Pacific region, especially India, China and Saudi Arabia, delivered exceptional results."

"Our outlook for 2006 and 2007 remains very positive. The worldwide economy has grown despite high energy prices, and we expect that it will continue to grow through 2006 and beyond. To satisfy the global demand for oil and natural gas, our customers have increased their E&P budgets in 2006 and we expect continued strength through 2007."

Mr. Deaton concluded, "The pricing environment remains robust and our equipment and people utilization remains high. With our confidence in the market outlook for 2006 and beyond, we are increasing our investment in people, capital and technology."

During the fourth quarter 2005, debt decreased $10.7 million to $1,087.9 million, and cash and short-term investments increased $31.9 million to $774.0 million. In the fourth quarter 2005, the company's capital expenditures were $159.2 million, depreciation and amortization was $99.2 million and dividend payments were $44.4 million.

In September 2002, the company's Board of Directors authorized the company to repurchase up to $275.0 million of its common stock. Prior to the third quarter of 2005, the company had repurchased approximately 8.1 million shares at a cost of $230.5 million. In October 2005, the company's Board of Directors increased the total amount of common stock that the company is authorized to repurchase from time to time by $455.5 million to a total of $500.0 million. During the fourth quarter 2005, the company purchased 1.7 million shares at an average price of $58.17 per share for a total of $98.5 million, with authorization remaining as of December 31, 2005 to purchase up to $401.5 million in stock.

The company has signed a non-binding letter of intent to sell Baker SPD, a product line group within the Baker Oil Tools division of the Completion and Production segment. Baker SPD had revenue of approximately $32 million in the twelve months ended December 31, 2005. Any transaction is subject to negotiation and execution of a definitive agreement as well as closing conditions, and the sale, if consummated, is expected to be completed in the first quarter of 2006. We have therefore reclassified all prior periods presented to reflect Baker SPD as a discontinued operation.