What's going on?
On Wednesday, Baker Hughes joined its chief rivals in the oilfield services industry in reporting better-than-expected financial results. The steadily rising oil price has made life a lot easier for the gaggle of companies whose fortunes hang on strong oil production.
What does this mean?
Baker Hughes’ revenue and profit both beat Wall Street’s expectations as increasing US oil production spurred demand for its products (it provides equipment and logistical support to oil drillers worldwide). The company also increased its forecast for its profit later this year as its customers begin to ramp up spending ahead of future production boosts (a rising oil price should see to that!).
Why should I care?
For markets: The outlook is looking slick for oilfield services companies after a tough few years.
When the oil price plunged by more than 50% in 2014/15, oil producers substantially pared back their production and spending. But with the oil price now at its highest level in more than three years, the drillers have stepped up their output. As long as oil prices stay around this level or higher, it appears that more pumping will occur, and the oilfield services giants – including Schlumberger and Halliburton, which also recently gave optimistic outlooks for this coming year – will benefit.
The bigger picture: An improving Baker Hughes would help General Electric (GE).
Last year, GE bought 62.5% of Baker Hughes and merged its own oilfield services business with the company. However, GE’s new CEO has recently hinted that it may sell off its stake in Baker Hughes in the future. Meanwhile, GE has myriad other problems to sort out, including news on Wednesday that it’s being investigated by US authorities regarding the disclosure of losses at its insurance division. An improving oil price and more profits in oilfield services would be welcomed by GE as it tries to focus on putting out its other fires.