Baker Hughes 2013 Annual Report Download - page 51

Baker Hughes Incorporated21
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be
read in conjunction with the consolidated financial statements included in Item 8. Financial Statements and
Supplementary Data contained herein.
EXECUTIVE SUMMARY
Baker Hughes is a leading supplier of oilfield services, products, technology and systems to the worldwide oil
and natural gas industry, referred to as our oilfield operations. We manage our oilfield operations through four
geographic segments consisting of North America, Latin America, Europe/Africa/Russia Caspian, and Middle East/
Asia Pacific. Our Industrial Services businesses are reported in a fifth segment.
The main products and services provided by oilfield operations fall into one of two categories, Drilling and
Evaluation or Completion and Production. This classification is based on the two major phases of constructing an
oil and/or natural gas well, the drilling phase and the completion phase, and how our products and services are
utilized in each phase. We also provide products and services to the downstream chemicals, and process and
pipeline industries, referred to as Industrial Services.
Within our oilfield operations, the primary driver of our businesses is our customers’ capital and operating
expenditures dedicated to oil and natural gas exploration, field development and production. Our business is
cyclical and is dependent upon our customers’ expectations for future oil and natural gas prices, economic growth,
hydrocarbon demand and estimates of current and future oil and natural gas production.
For 2013, we generated revenue of $22.36 billion, an increase of $1 billion, or 5%, compared to 2012.
Revenue from our North America segment for 2013 was $10.88 billion, which was flat compared to 2012. Revenue
for our Latin America segment for 2013 was $2.31 billion, a decrease of 4% compared to 2012. The Western
Hemisphere was negatively impacted by activity declines in several markets, particularly in the U.S., Canada and
Brazil where rig counts were below 2012 levels. Revenue from the Eastern Hemisphere was $7.90 billion, an
increase of 14% compared to 2012. Revenue in our Middle East/Asia Pacific segment grew $775 million, or 24%,
in 2013 compared to 2012. Industrial Services revenue was $1.28 billion, an increase of 5% compared to 2012.
Net income attributable to Baker Hughes was $1.10 billion for 2013 compared to $1.31 billion for 2012. Profit
before tax for our North America segment was $968 million in 2013 compared to $1.27 billion in 2012. Profitability
in North America was adversely impacted by the continued over supply of pressure pumping capacity in the market.
This was partially mitigated by increased activity and margins in the Gulf of Mexico. Profit before tax for our Latin
America segment was $66 million in 2013 compared to $197 million in 2012. Profitability in Latin America declined
due to reduced activity and lower pricing in Brazil and severance costs incurred across the entire segment as we
realigned our business to respond to lower activity levels. Profit before tax for the Eastern Hemisphere was $1.05
billion in 2013 compared to $899 million in 2012. The increase in profitability in the Eastern Hemisphere was driven
primarily by the activity increases and improved profitability in Asia Pacific and Russia Caspian.
As of December 31, 2013, Baker Hughes had approximately 59,400 employees compared to approximately
58,800 employees as of December 31, 2012.
BUSINESS ENVIRONMENT
In North America, customer spending decreased in 2013 compared to 2012, resulting in a 7% decrease in the
North America rig count. Natural gas-directed drilling activity decreased 23% in 2013 compared to 2012 as
increased production in unconventional natural gas shale basins contributed to high natural gas working inventories
and ultimately low commodity prices. In the U.S., low natural gas prices resulted in reduced customer spending in
the natural gas shale basins, resulting in a 31% reduction in natural gas-directed rig activity in 2013 compared to
2012. Oil-directed rig activity in the U.S. increased by 1% during the same period. In Canada, high oil price
differentials primarily due to constrained refinery and pipeline capacity resulted in an 11% reduction in oil-directed
customer activity. This was offset by an 18% increase in natural gas-directed rigs driven by drilling in condensate