Baker Hughes 2009 Annual Report Download - page 84

10 Baker Hughes Incorporated
reduce their capital spending plans to levels supported by
internally-generated cash flow. In addition, the combination of
a reduction of cash flow resulting from declines in commodity
prices, a reduction in borrowing bases under reserve-based
credit facilities and the lack of availability of debt or equity
financing may impact the ability of our customers to pay
amounts owed to us. Starting in late 2008 and continuing
through the fourth quarter of 2009, we experienced a delay
in receiving payments from our customers in Venezuela. As
of December 31, 2009, our accounts receivable in Venezuela
totaled approximately 5% of our total accounts receivable.
For the year ended December 31, 2009, Venezuela revenues
were approximately 2% of our total consolidated revenues.
Supply of oil and natural gas is subject to factors
beyond our control, which may adversely affect
our operating results.
Productive capacity for oil and natural gas is dependent
on our customers’ decisions to develop and produce oil and
natural gas reserves. The ability to produce oil and natural gas
can be affected by the number and productivity of new wells
drilled and completed, as well as the rate of production and
resulting depletion of existing wells. Advanced technologies,
such as horizontal drilling, improve total recovery but also
result in a more rapid production decline.
Access to prospects is also important to our customers.
Access to prospects may be limited because host governments
do not allow access to the reserves or because another oil and
natural gas exploration company owns the rights to develop
the prospect. Government regulations and the costs incurred by
oil and natural gas exploration companies to conform to and
comply with government regulations, may also limit the quan-
tity of oil and natural gas that may be economically produced.
Supply can also be impacted by the degree to which indi-
vidual Organization of Petroleum Exporting Countries (“OPEC”)
nations and other large oil and natural gas producing coun-
tries, including, but not limited to, Norway and Russia, are
willing and able to control production and exports of oil, to
decrease or increase supply and to support their targeted oil
price while meeting their market share objectives. Any of these
factors could affect the supply of oil and natural gas and could
have a material adverse effect on our results of operations.
Changes in spare productive capacity or inventory
levels can be indicative of future customer spending to
explore for and develop oil and natural gas which in turn
influences the demand for our products and services.
Spare productive capacity and oil and natural gas storage
inventory levels are an indicator of the relative balance
between supply and demand. High or increasing storage or
inventories generally indicate that supply is exceeding demand
and that energy prices are likely to soften. Low or decreasing
storage or inventories are an indicator that demand is growing
faster than supply and that energy prices are likely to rise.
Measures of maximum productive capacity compared to
demand (“spare productive capacity”) are also an important
factor influencing energy prices and spending by oil and natu-
ral gas exploration companies. When spare productive capacity
is low compared to demand, energy prices tend to be higher
and more volatile reflecting the increased vulnerability of the
entire system to disruption.
Seasonal and adverse weather conditions adversely
affect demand for our services and operations.
Weather can also have a significant impact on demand
as consumption of energy is seasonal, and any variation from
normal weather patterns, cooler or warmer summers and
winters, can have a significant impact on demand. Adverse
weather conditions, such as hurricanes in the Gulf of Mexico,
may interrupt or curtail our operations, or our customers’
operations, cause supply disruptions and result in a loss of
revenue and damage to our equipment and facilities, which
may or may not be insured. Extreme winter conditions in
Canada, Russia or the North Sea may interrupt or curtail our
operations, or our customers’ operations, in those areas and
result in a loss of revenue.
Risk Factors Related to Our Business
Our expectations regarding our business are affected
by the following risk factors and the timing of any of these
risk factors:
We operate in a highly competitive environment,
which may adversely affect our ability to succeed.
We operate in a highly competitive environment for market-
ing oilfield services and securing equipment and trained person-
nel. Our ability to continually provide competitive products and
services can impact our ability to defend, maintain or increase
prices for our products and services, maintain market share
and negotiate acceptable contract terms with our customers.
In order to be competitive, we must provide new technologies
and reliable products and services that perform as expected
and that create value for our customers. Our ability to defend,
maintain or increase prices for our products and services is in
part dependent on the industry’s capacity relative to customer
demand, and on our ability to differentiate the value delivered
by our products and services from our competitors’ products
and services. In addition, our ability to negotiate acceptable
contract terms and conditions with our customers, especially
state-owned national oil companies, our ability to manage
warranty claims and our ability to effectively manage our
commercial agents can also impact our results of operations.
Managing development of competitive technology and
new product introductions on a forecasted schedule and at
forecasted costs can impact our financial results. Development
of competing technology that accelerates the obsolescence of
any of our products or services can have a detrimental impact
on our financial results and can result in the potential impair-
ment of long-lived assets.
We may be disadvantaged competitively and financially by
a significant movement of exploration and production opera-
tions to areas of the world in which we are not currently active.