Baker Hughes 2013 Annual Report Download - page 57

Baker Hughes Incorporated27
was negatively impacted by the impairment charges associated with the information technology assets and facility
closure discussed previously.
In January 2014, Venezuela announced the establishment of a dual exchange rate system whereby a rate of
6.3 Bolivares Fuertes to the U.S. Dollar will be applied to certain economic sectors, such as food and medicine,
while other sectors of the economy will apply an exchange rate determined based on the results of the Venezuelan
central bank’s system of weekly currency auctions. While the functional currency of our operations in Venezuela is
the U.S. Dollar, a portion of the transactions and balances are denominated in Bolivares Fuertes. For financial
reporting purposes, such local currency transactions are remeasured into U.S. Dollars at the official exchange
rate of 6.3 Bolivares Fuertes to the U.S. Dollar. We are assessing the applicability and impact, if any, of the
potential change in exchange rates. If we were required to apply a different exchange rate, we may incur a loss in
2014. For example, if we were to apply an exchange rate of 11.3 Bolivares Fuertes per U.S. Dollar (the rate per the
most recent auction) to our local currency denominated balances at December 31, 2013, it would result in a loss of
approximately $10 million.
Europe/Africa/Russia Caspian (“EARC”)
EARC revenue increased 6% in 2013 compared to 2012. Revenue increased in both Africa and Russia
Caspian, with Europe remaining flat. The increase in Africa was predominantly in Nigeria, where our drilling
services and completion systems product lines experienced increased activity, as well as in North Africa, where the
resumption of activity in Libya benefited our drilling services, wireline services and completion systems product
lines. Increased activity in Algeria and share gains in Mauritania also contributed to increased revenues compared
to 2012. Growth in Russia Caspian was due to increased demand for our drilling services, completion systems,
pressure pumping and artificial lift product lines. In Europe, revenue was flat compared to 2012. A new drilling
services contract and higher activity for pressure pumping and wireline services in Norway were offset by the
completion of significant projects in the Eastern Mediterranean and lower activity across all drilling and evaluation
product lines in the United Kingdom.
EARC profit before tax decreased $16 million, or 3%, in 2013 compared to 2012. In Europe, profit margins
declined due to reduced pricing and increased start-up costs associated with the new drilling services contract in
Norway. Europe profitability was also impacted by the reduced drilling and evaluation activity in the United Kingdom
and completion of the projects in the Eastern Mediterranean. These declines were partially mitigated by improved
profits in Africa and Russia Caspian, primarily associated with higher revenue. In 2012, EARC profit before tax was
negatively impacted by the impairment charges associated with the information technology assets and facility
closure discussed previously.
Middle East/Asia Pacific (“MEAP”)
MEAP revenue increased 24% in 2013 compared to 2012, while the corresponding rig count increased only 4%
over the same period. Both the Middle East and Asia Pacific posted strong revenue growth in all geographies, most
notably in Iraq, Saudi Arabia, the Arabian Gulf, Southeast Asia and China. Iraq revenue increased due to growth in
our integrated services contracts. However, Iraq revenue was negatively impacted in the fourth quarter of 2013 due
to a significant disruption in operations. Saudi Arabia saw a significant increase in revenue due to higher demand
for our drilling services, pressure pumping and wireline services product lines as well as growth in an integrated
services contract. Revenue increased in the Arabian Gulf due to increased demand for our drilling services and
wireline services product lines in United Arab Emirates, as well as for wireline services in India. Within Asia Pacific,
revenue growth was strongest in South East Asia for drilling services, completion systems and pressure pumping.
Indonesia and China experienced increased activity for drilling services, and demand for wireline services grew in
Papua New Guinea.
MEAP profit before tax improved $165 million, or 53%, in 2013 compared to 2012. The primary driver of the
increase in profit before tax was higher incremental profit on increased revenue in Asia Pacific, and to a lesser
extent in the Middle East. Further, we experienced a favorable shift in product mix with a higher proportion of
revenue derived from our drilling services and completion systems product lines. Profit before tax in 2013 also
benefited from ongoing profit improvement initiatives in Asia Pacific. These improvements were offset by $79
million of losses in Iraq related to the significant disruption to our operations, expenses associated with personnel
movements and security measures, and other nonrecurring items. In 2012, MEAP profit before tax was negatively