Baker Hughes 2009 Annual Report Download - page 97

2009 Form 10-K 23
Our outlook for exploration and development spending is
based upon our expectations for customer spending in the
markets in which we operate, and is driven primarily by our
perception of industry expectations for oil and natural gas
prices and their likely impact on customer capital and operat-
ing budgets as well as other factors that could impact the eco-
nomic return oil and gas companies expect for developing oil
and gas reserves. Our forecasts are based on our analysis of
information provided by our customers as well as market
research and analyst reports including the Short Term Energy
Outlook (“STEO”) published by the Energy Information Admin-
istration of the U.S. Department of Energy (“DOE”), the Oil
Market Report published by the IEA and the Monthly Oil
Market Report published by OPEC. Our outlook for economic
growth is based on our analysis of information published by
a number of sources including the International Monetary
Fund (“IMF”), the Organization for Economic Cooperation
and Development (“OECD”) and the World Bank.
In North America, the outlook for spending in 2010 will
be significantly influenced by the outlook for the natural gas
industry. The lack of recovery in industrial demand for natural
gas in conjunction with a rebound in the gas-directed rig
count from mid-2009 lows and continued advances in hori-
zontal drilling and advanced fracturing and completion tech-
nologies has led to increasing rates of initial production in the
unconventional gas fields, resulting in high levels of gas pro-
duction relative to demand. Natural gas prices have recovered
from low levels reached in the third and fourth quarters of
2009 in response to colder weather throughout much of the
U.S. The increase in oil-directed drilling in the U.S. reflects
the rise in oil prices from low levels in the first half of 2009.
Expectations for Oil Prices – Due to improved expecta-
tions for the global economy, demand for oil is expected to
increase in a range from 0.8 million to 1.1 million barrels per
day in 2010 relative to 2009. Non-OPEC supply growth is
expected to increase modestly in 2010 related to 2009 and is
expected to increase in a range of between 100 thousand to
310 thousand barrels per day. Decreased demand and moder-
ate growth in non-OPEC production are expected to pressure
OPEC to manage its production levels to support oil prices.
Inventories and spare productive capacity, which buffer oil
markets from supply disruptions, are expected to increase as
the gap between increasing supply and decreasing demand
grows. In its February 2010 STEO report, the DOE forecasted oil
prices (West Texas Intermediate) to average $81/Bbl in the sec-
ond half of 2010, increasing to an average of $84/Bbl in 2011.
Expectations for North America Natural Gas Prices –
The lack of overall demand growth, increasing gas-directed rig
count and improving rates of initial production from new gas
wells are expected to keep natural gas prices from increasing
dramatically in 2010. In its February 2010 STEO report, the
DOE forecasted that U.S. natural gas prices would average
$5.37/mmBTU in 2010. The DOE forecasts gas prices to
increase to an average of $5.86/mmBTU in 2011.
Our capital expenditures are expected to be approximately
$1.1 billion to $1.2 billion for 2010, including approximately
$350 million to $400 million that we expect to spend on infra-
structure, primarily outside North America, but excluding the
pending BJ Services merger and any other acquisitions. A
significant portion of our planned capital expenditures can
be adjusted to reflect changes in our expectations for future
customer spending. We expect to manage our capital expendi-
tures to match market demand.
COMPLIANCE
We do business in over 90 countries, including approxi-
mately one-half of the 40 countries having the lowest scores,
which indicates high levels of corruption, in Transparency
International’s Corruption Perception Index survey for 2009.
We devote significant resources to the development, mainte-
nance and enforcement of our Business Code of Conduct pol-
icy, our anti-bribery compliance policies, our internal control
processes and procedures and other compliance related poli-
cies. Notwithstanding the devotion of such resources, and in
part as a consequence thereof, from time to time we discover
or receive information alleging potential violations of laws and
regulations, including the FCPA and our policies, processes and
procedures. We conduct internal investigations of these poten-
tial violations and take appropriate action depending upon the
outcome of the investigation.
We anticipate that the devotion of significant resources
to compliance-related issues, including the necessity for inves-
tigations, will continue to be an aspect of doing business in a
number of the countries in which oil and natural gas explora-
tion, development and production take place and in which
we are requested to conduct operations. Compliance-related
issues have limited our ability to do business and/or have
raised the cost of operating in these countries. In order to
provide products and services in some of these countries,
we may in the future utilize ventures with third parties, sell
products to distributors or otherwise modify our business
approach in order to improve our ability to conduct our busi-
ness in accordance with applicable laws and regulations and
our Business Code of Conduct.
Our Best-in-Class Global Ethics and Compliance Program
(“Compliance Program”) is based on (i) our Core Values of
Integrity, Performance, Teamwork and Learning; (ii) the stan-
dards contained in our Business Code of Conduct; (iii) the laws
of the countries where we operate; and (iv) our commitments
to the DOJ and the SEC. Our Compliance Program is refer-
enced within the Company as “C2” or “Completely Com-
pliant”. The Completely Compliant theme is intended to
establish the proper Tone-at-the-Top throughout the Company.
Employees are consistently reminded that they play a crucial
role in ensuring that the Company always conducts its busi-
ness ethically, legally and safely.
Our Chief Compliance Officer (“CCO”) oversees the devel-
opment, administration and enforcement of our Business Code
of Conduct, as well as legal compliance standards, policies,
procedures and processes. The CCO reports directly to the
Senior Vice President and General Counsel and the Chairman
of the Audit/Ethics Committee of our Board of Directors. The
CCO has ready access to all of the other senior officers of
the Company. Our legal compliance group includes our CCO,
International Trade Counsel, Region Compliance Counsel,
FCPA due diligence counsel, specialized investigative counsel,
as well as labor and employment counsel. The legal compliance