Baker Hughes 2010 Annual Report Download - page 92

10 B a k e r H u g h e s I n c o r p o r a t e d
International, national, and state governments and agen-
cies are currently evaluating and promulgating climate-related
legislation and regulations that are focused on restricting
greenhouse gas (“GHG”) emissions. In the U.S., the EPA has
taken steps to regulate GHGs as pollutants under the Clean
Air Act (“CAA”). The EPA’s “Mandatory Reporting of Green-
house Gases” rule established a comprehensive scheme of
regulations that require monitoring and reporting of GHG
emissions that began in 2010. Furthermore, the EPA recently
proposed additional GHG reporting rules specifically for the oil
and gas industry. The EPA has also published a final rule, the
“Endangerment Finding,” indicating that GHGs in the atmo-
sphere endanger public health and welfare, and that emissions
of GHGs from mobile sources cause or contribute to the GHG
pollution. Following issuance of the Endangerment Finding,
the EPA promulgated final motor vehicle GHG emission stan-
dards on April 1, 2010. These developments may curtail pro-
duction and demand for fossil fuels such as oil and gas in
areas of the world where our customers operate and thus
adversely affect future demand for our services, which may
in turn adversely affect future results of operations.
International developments focused on restricting the
emission of carbon dioxide and other GHGs include the
United Nations Framework Convention on Climate Change,
also known as the “Kyoto Protocol” (an internationally applied
protocol, which has been ratified in Canada) and the European
Union’s Emission Trading System. The Carbon Reduction Com-
mitment in the U.K. is the first cap and trade scheme to affect
Baker Hughes facilities. Domestic cap and trade programs
include the Regional Greenhouse Gas Initiative or in the North-
eastern United States, and the Western Regional Climate Action
Initiative in the Western United States. A federal cap and trade
regime may develop in the U.S. as well. These developments
may curtail production and demand for fossil fuels such as oil
and gas in areas of the world where our customers operate
and thus adversely affect future demand for our services,
which may in turn adversely affect future results of operations.
Demand for pressure pumping services could be reduced
or eliminated by governmental regulation or a change
in the law.
The EPA plans to study hydraulic fracturing practices, and
legislation may be introduced in the U.S. Congress that would
authorize the EPA to regulate hydraulic fracturing. In addition,
a number of states are evaluating the adoption of legislation
or regulations governing hydraulic fracturing. Such federal or
state legislation and/or regulations could impair our operations
and/or greatly reduce or eliminate demand for the Company’s
pressure pumping services. Such legislation and/or regulations,
if enacted, could adversely affect future results of operations.
We are unable to predict whether the proposed legislation or
any other proposals will ultimately be enacted, and if so, the
impact on the Company’s business.
Control of oil and gas reserves by state-owned oil
companies may impact the demand for our services
and create additional risks in our operations.
Much of the world’s oil and gas reserves are controlled
by state-owned oil companies. State-owned oil companies
may require their contractors to meet local content require-
ments or other local standards, such as joint ventures, that
could be difficult or undesirable for the Company to meet.
The failure to meet the local content requirements and other
local standards may adversely impact the Company’s opera-
tions in those countries.
In addition, many state-owned oil companies may require
integrated contracts or turn-key contracts that could require
the Company to provide services outside its core business.
Providing services on an integrated or turnkey basis generally
requires the Company to assume additional risks.
Changes in economic conditions and currency
fluctuations may impact our operating results.
Fluctuations in foreign currencies relative to the U.S. Dollar
can impact our revenue and our costs of doing business. Most
of our products and services are sold through contracts denom-
inated in U.S. Dollars or local currency indexed to U.S. Dollars;
however, some of our revenue, local expenses and manufac-
turing costs are incurred in local currencies and therefore
changes in the exchange rates between the U.S. Dollar and
foreign currencies, particularly the British Pound Sterling, Euro,
Canadian Dollar, Norwegian Krone, Russian Ruble, Australian
Dollar, Brazilian Real and the Venezuelan Bolivar (which, for
example, was devalued by the Venezuelan government in
January 2010), can increase or decrease our revenue and
expenses reported in U.S. Dollars and may impact our results
of operations.
The condition of the capital markets and equity markets
in general can affect the price of our common stock and our
ability to obtain financing, if necessary. If the Company’s credit
rating is downgraded, this would increase borrowing costs
under our revolving credit agreements and commercial paper
program, as well as the cost of renewing or obtaining, or make
it more difficult to renew or obtain or issue, new debt financing.
Changes in market conditions may impact
any stock repurchases.
To the extent the Company engages in stock repurchases,
such activity is subject to market conditions, such as the
trading prices for our stock, as well as the terms of any stock
purchase plans intended to comply with Rule 10b5-1 or
Rule 10b-18 of the Exchange Act. Management, in its
discretion, may engage in or discontinue stock repurchases
at any time.