Baker Hughes 2014 Annual Report Download - page 35

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10
well as the rate of production and resulting depletion of existing wells. Advanced technologies, such as horizontal
drilling and hydraulic fracturing, improve total recovery but also result in a more rapid production decline and may
become subject to more stringent regulation in the future.
Productive capacity in excess of demand (“spare productive capacity”) is also an important factor influencing
energy prices and spending by oil and natural gas exploration companies. 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, inventories, or spare productive capacity generally indicate that supply is exceeding demand
and that energy prices are likely to soften. Low or decreasing storage, inventories, or spare productive capacity are
generally an indicator that demand is growing faster than supply and that energy prices are likely to rise.
Access to prospects is also important to our customers and such access may be limited because host
governments do not allow access to the reserves. 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 quantity of oil
and natural gas that may be economically produced.
Supply can also be impacted by the degree to which individual Organization of Petroleum Exporting Countries
(“OPEC”) nations and other large oil and natural gas producing countries, 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 effect on our results of operations.
Volatility of oil and natural gas prices can adversely affect demand for our products and services.
Volatility in oil and natural gas prices can also impact our customers’ activity levels and spending for our
products and services. Current energy prices are important contributors to cash flow for our customers and their
ability to fund exploration and development activities. Over the past several months oil prices have declined
significantly due in large part to increasing supplies, weakening demand growth and OPEC's position to not cut
production. Expectations about future prices and price volatility are important for determining future spending
levels.
Lower oil and natural gas prices generally lead to decreased spending by our customers. While higher oil and
natural gas prices generally lead to increased spending by our customers, sustained high energy prices can be an
impediment to economic growth, and can therefore negatively impact spending by our customers. Our customers
also take into account the volatility of energy prices and other risk factors by requiring higher returns for individual
projects if there is higher perceived risk. Any of these factors could affect the demand for oil and natural gas and
could have a material effect on our results of operations.
Our customers’ activity levels and spending for our products and services and ability to pay amounts owed us could
be impacted by the ability of our customers to access equity or credit markets.
Our customers’ access to capital is dependent on their ability to access the funds necessary to develop
economically attractive projects based upon their expectations of future energy prices, required investments and
resulting returns. Limited access to external sources of funding has and may continue to cause customers to
reduce their capital spending plans to levels supported by internally-generated cash flow. In addition, a reduction of
cash flow resulting from declines in commodity prices, a reduction in borrowing bases under reserve-based credit
facilities or the lack of available debt or equity financing may impact the ability of our customers to pay amounts
owed to us.