Baker Hughes (NYSE:BKR) said on Monday that total spending by oil and gas producers worldwide is expected to fall modestly this year, with gains in some regions counterbalanced by cutbacks in others.
The company pointed to growth in Latin America, offshore Africa, and North America land as positive contributors to spending, while Europe and the Middle East are likely to see lower activity. Baker Hughes noted that the conflict in the Middle East has been a dominant influence on energy markets throughout the year, with recurring tensions between the U.S. and Iran prompting producers to be more cautious rather than accelerating drilling programs.
"Customers remain focused on maximizing production from existing assets while preserving flexibility to respond to evolving market conditions," CEO Lorenzo Simonelli said on a conference call with analysts after Baker Hughes released its earnings on Sunday.
Market reaction to the company's quarterly report was favorable. Shares of the oilfield services firm rose by more than 6% after Baker Hughes exceeded quarterly profit estimates. Order intake for the company's industrial and energy technology unit doubled year-over-year, reaching a record $7.1 billion.
Despite the strong order performance, Baker Hughes cautioned that the IET segment is expected to absorb a modest revenue impact from regional disruptions. The company said the IET business could see a 1%-2% revenue hit attributable to the conflict.
For the third quarter, Baker Hughes projected revenue for the IET segment in a range between $3.17 billion and $3.47 billion. That guidance falls short of analysts' consensus expectations of $3.79 billion, based on data compiled by LSEG.
"While the overall impact from Middle East disruptions should remain modest, we expect some increase in logistics and inflationary pressures at our regional facilities during the third quarter," CFO Ahmed Moghal said, noting that the effect of the Iran war is expected to be offset by strength in regions outside the Middle East.
The company emphasized that the net effect on its global operations should be limited, but flagged heightened logistical challenges and inflationary pressures at facilities in affected regions during the current quarter.
Looking ahead, Baker Hughes will monitor evolving market conditions and regional dynamics that are influencing producer capital allocation. Management highlighted a continuing emphasis among customers on extracting value from existing assets while maintaining the ability to adapt if market conditions change.