Baker Hughes 2013 Annual Report Download - page 41

Baker Hughes Incorporated11
Changes in spare productive capacity or inventory levels can be indicative of future customer spending to explore
for and develop oil and natural gas which in turn influences the demand for our products and services.
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 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.
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. 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.
Seasonal and weather conditions could adversely affect demand for our services and operations.
Variation from normal weather patterns, such as 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. Extreme winter conditions in Canada, Russia or
the North Sea may interrupt or curtail our operations, or our customers’ operations, in those areas and result in a
loss of revenue.
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 marketing oilfield services and securing equipment and
trained personnel. Our ability to continually provide competitive products and services can impact our ability to
defend, 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, reliable products