Baker Hughes 2007 Annual Report Download - page 95

12 Baker Hughes Incorporated
Access to prospects and capital are 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. Access to capital is dependent on
our customers’ ability to access the funds necessary to develop
economically attractive projects based on their expectations of
future energy prices, required investments and resulting returns.
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 be interrupted by a number of factors includ-
ing political instability, civil unrest, labor issues, terrorist attacks,
war or military activity. Key oil producing countries which could
be subject to supply interruptions include, but are not limited
to, Saudi Arabia, Iraq and other Middle Eastern countries,
Nigeria, Norway, Russia and Venezuela. The impact of supply
disruptions on oil and natural gas prices and oil and natural
gas price volatility is tempered by the size and expected dura-
tion of the disruption relative to the spare productive capacity
at the time of the disruption.
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 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 adverse effect on our results of operations.
The worldwide oil and natural gas industry is subject
to geopolitical and terrorism risks.
Geopolitical risks and terrorist activity continue to grow
in several key countries where the Company does business.
These risks could lead to a loss of investment in the country
as well as a disruption in business activities.
Spare productive capacity and future demand impact
our operations.
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 natural 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.
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 mar-
keting oilfield services and securing equipment and trained
personnel. Our ability to continually provide competitive prod-
ucts and services can impact our ability to 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 main-
tain 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 competitor’s 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.
The high cost or unavailability of infrastructure,
materials, equipment, supplies and personnel could
adversely affect our ability to execute our operations
on a timely basis.
Our manufacturing operations are dependent on having
sufficient raw materials, component parts and manufacturing
capacity available to meet our manufacturing plans at a reason-
able cost while minimizing inventories. Our ability to effectively