Baker Hughes 2009 Annual Report Download - page 93

2009 Form 10-K 19
BUSINESS ENVIRONMENT
Our business environment and its corresponding operating
results are affected significantly by the level of energy industry
spending for the exploration, development and production of oil
and natural gas reserves. Spending by oil and natural gas explo-
ration and production companies is dependent upon their fore-
casts regarding the expected future supply and future demand
for oil and natural gas products and their estimates of costs to
find, develop, and produce reserves. Changes in oil and natural
gas exploration and production spending will normally result in
increased or decreased demand for our products and services,
which will be reflected in the rig count and other measures.
In 2009, the impact of the global economic recession and
the associated decline in oil and natural gas consumption and
energy prices resulted in significant decreases in capital spend-
ing by our customers for exploration for and development of
oil and natural gas resources. In the first half of 2009, spend-
ing continued to decline from the peak levels of September
2008 as evidenced by a 57% drop in the U.S. rig count from a
peak of 2,031 rigs in September 2008 to a low of 876 rigs in
June 2009 and a 15% drop in the international rig count from
a peak of 1,108 rigs in September 2008 to a low of 947 rigs
in August 2009. Prices for our products and services, particu-
larly in the Drilling and Evaluation segment, declined signifi-
cantly in the first half of 2009. In the second half of 2009,
oil-driven activity began to increase in both the U.S. and inter-
national markets as oil prices improved and as the market
began to anticipate a recovery of economic activity.
Oil and Natural Gas Prices
Oil (Bloomberg West Texas Intermediate (WTI) Cushing
Crude Oil Spot Price) and natural gas (Bloomberg Henry Hub
Natural Gas Spot Price) prices are summarized in the table
below as averages of the daily closing prices during each of
the periods indicated.
2009 2008 2007
Oil prices ($/Bbl) $ 61.99 $ 99.92 $ 72.23
Natural gas prices ($/mmBtu) 3.94 8.89 6.96
Oil prices averaged $61.99/Bbl in 2009. The year 2009
began with oil prices trading near $46/Bbl in early January. In
response to a weakening outlook for the worldwide economy
and for oil consumption, oil prices decreased through early
February reaching a low for the year of $33.98/Bbl. In mid-
2009, oil prices began to increase, driven in part by an improv-
ing outlook for the global economy. Oil prices reached a high
of $81.04 /Bbl in late October, thereafter trading in the mid-
to-high $70/Bbl range for the balance of the year.
Natural gas prices averaged $3.94/mmBtu for the year
2009. The year 2009 began with natural gas prices in the high
$5/mmBtu range. However, weakness in the U.S. economy
and expectations for a decline in demand, particularly in the
industrial sector, led to weakening gas prices through the third
quarter of the year. In early September, the price of natural gas
hit a low for the year of $1.88/mmBtu as strong production
data, coupled with a weak demand outlook, led to expecta-
tions that natural gas inventories would rise to record levels
at the end of the annual injection season. Natural gas prices
increased in late December as colder-than-normal tempera-
tures led to strong withdrawals of natural gas from storage.
Rig Counts
Baker Hughes has been providing rig counts to the public
since 1944. We gather all relevant data through our field ser-
vice personnel, who obtain the necessary data from routine
visits to the various rigs, customers, contractors and/or other
outside sources. This data is then compiled and distributed to
various wire services and trade associations and is published
on our website. Rig counts are compiled weekly for the U.S.
and Canada and monthly for all international and U.S. work-
over rigs. Published international rig counts do not include rigs
drilling in certain locations, such as Russia, the Caspian and
onshore China, because this information is not readily available.
Rigs in the U.S. are counted as active if, on the day the
count is taken, the well being drilled has been started but drill-
ing has not been completed and the well is anticipated to be
of sufficient depth to be a potential consumer of our drill bits.
Rigs in Canada are counted as active if data obtained by the
Canadian Association of Oilwell Drillers and Contractors indi-
cates that drilling operations have occurred during the week
and we are able to verify this information. In most interna-
tional areas, rigs are counted as active if drilling operations
have taken place for at least 15 days during the month. In
some active international areas where better data is available,
we compute a weekly or daily average of active rigs. In inter-
national areas where there is poor availability of data, the rig
counts are estimated from third-party data. The rig count does
not include rigs that are in transit from one location to another,
rigging up, being used in non-drilling activities, including pro-
duction testing, completion and workover, and are not
expected to be significant consumers of drill bits.
Our rig counts are summarized in the table below as aver-
ages for each of the periods indicated.
2009 2008 2007
U.S. – land and inland waters 1,046 1,814 1,695
U.S. – offshore 44 65 73
Canada 222 382 343
North America 1,312 2,261 2,111
Latin America 356 384 355
North Sea 43 45 48
Other Europe 41 53 29
Africa 62 65 66
Middle East 252 280 265
Asia Pacific 243 252 241
Outside North America 997 1,079 1,004
Worldwide 2,309 3,340 3,115