Baker Hughes 2009 Annual Report Download - page 83

2009 Form 10-K 9
the total spent on remediation projects at current or former
sites, Superfund projects and environmental compliance activi-
ties, exclusive of capital expenditures. In 2010, we expect to
spend approximately $43 million to comply with Environmen-
tal Regulations. During the year ended December 31, 2009,
we incurred $22 million in capital expenditures for environ-
mental control equipment, and we estimate we will incur
approximately $24 million during 2010. Based upon current
information, we believe that our compliance with Environmen-
tal Regulations will not have a material adverse effect upon
our capital expenditures, earnings or competitive position
because we have either established adequate reserves or our
cost for that compliance is not expected to be material to our
consolidated financial statements. Our total accrual for envi-
ronmental remediation is $18 million and $17 million, which
includes accruals of $6 million and $6 million for the various
Superfund sites, at December 31, 2009 and 2008, respectively.
We are subject to various other governmental proceedings
and regulations, including foreign regulations, relating to envi-
ronmental matters, but we do not believe that any of these
matters is likely to have a material adverse effect on our con-
solidated financial statements. We continue to focus on reduc-
ing future environmental liabilities by maintaining appropriate
company standards and improving our assurance programs.
See Note 15 of the Notes to Consolidated Financial Statements
in Item 8 herein for further discussion of environmental matters.
ITEM 1A. RISK FACTORS
An investment in our common stock involves various risks.
When considering an investment in our Company, one should
consider carefully all of the risk factors described below, as well
as other information included and incorporated by reference in
this report. There may be additional risks, uncertainties and mat-
ters not listed below, that we are unaware of, or that we cur-
rently consider immaterial. Any of these could adversely affect
our business, financial condition, results of operations and cash
flows and, thus, the value of an investment in our Company.
Risk Factors Related to the Worldwide Oil and
Natural Gas Industry
Our business is focused on providing products and services
to the worldwide oil and natural gas industry; therefore, our
risk factors include those factors that impact, either positively
or negatively, the markets for oil and natural gas. Expenditures
by our customers for exploration, development and production
of oil and natural gas are based on their expectations of future
hydrocarbon demand, the risks associated with developing the
reserves, their ability to finance exploration for and develop-
ment of reserves, and the future value of the reserves. Their
evaluation of the future value is based, in part, on their expec-
tations for global demand, global supply, excess production
capacity, inventory levels, and other factors that influence oil
and natural gas prices. The key risk factors currently influencing
the worldwide oil and natural gas markets are discussed below.
Demand for oil and natural gas is subject to factors
beyond our control, which may adversely affect our
operating results. Changes in the global economy or
credit market could impact our customers’ spending
levels and our revenues and operating results.
Demand for oil and natural gas, as well as the demand for
our services, is highly correlated with global economic growth,
and in particular by the economic growth of countries such as
the U.S., India, and China, as well as developing countries in
Asia and the Middle East who are either significant users of
oil and natural gas or whose economies are experiencing the
most rapid economic growth compared to the global average.
The past slowdown in global economic growth and recession
in the developed economies resulted in reduced demand for
oil and natural gas, increased spare productive capacity and
lower energy prices. Weakness or deterioration of the global
economy or credit market could reduce our customers’ spend-
ing levels and reduce our revenues and operating results.
Incremental weakness in global economic activity, particularly
in China, India, the Middle East and developing Asia will
reduce demand for oil and natural gas and result in lower
oil and natural gas prices. Incremental strength in global eco-
nomic activity in such areas will create more demand for oil
and natural gas and support higher oil and natural gas prices.
In addition, demand for oil and natural gas could be impacted
by environmental regulation, including “cap and trade”
legislation, carbon taxes and the cost for carbon capture
and sequestration related regulations.
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 explora-
tion and development activities. Expectations about future
prices and price volatility are important for determining future
spending levels.
Lower oil and 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 eco-
nomic 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 per-
ceived risk. Any of these factors could affect the demand for
oil and natural gas and could have a material adverse effect
on our results of operations.
Many of our customers’ activity levels and spending for
our products and services and ability to pay amounts
owed us have been impacted by economic conditions.
Access to capital is dependent on our customers’ 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 caused many customers to