Baker Hughes 2015 Annual Report Download - page 33

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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 use in 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. As of December 31, 2015, Baker
Hughes had approximately 43,000 employees compared to approximately 62,000 employees as of December 31,
2014.
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. 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 services, referred to as
Industrial Services.
2015 was an extremely challenging year for the oil and natural gas industry. Crude oil prices declined
significantly in the fourth quarter of 2014 and experienced significant volatility in 2015, reaching a seven year low in
December 2015 following OPEC's decision to eliminate its oil production ceiling. In response to the lower
commodity prices in 2015, our customers curtailed their spending by reducing drilling activity in less economical
unconventional plays and delaying well completion activities. As a result of these changes in market conditions and
the significant decrease in activity and customer spending, we experienced a significant decline in demand and
increased pricing pressure for our products and services.
For 2015, we generated revenue of $15.74 billion, a decrease of $8.81 billion, or 36%, compared to 2014. Net
loss attributable to Baker Hughes was $1.97 billion for 2015 compared to net income attributable to Baker Hughes
of $1.72 billion for 2014. The steep decline in activity, as evidenced by the 46% decline in the global rig count since
the fourth quarter of 2014, and price deterioration experienced across all our segments is a large driver for the
decline in revenue and profitability, most notably in North America. Beginning in the first quarter of 2015, we
initiated actions to restructure and adjust our operations and cost structure to reflect reduced activity levels. As a
result of these restructuring activities, we recorded charges totaling $830 million in 2015, which included workforce
reductions, contract terminations, facility closures and the write-down of excess machinery and equipment. In
addition to our restructuring activities, as a result of the downturn in the energy market and its impact on our
business outlook, we determined that the carrying amount of certain assets exceeded their respective fair values;
therefore, we recorded an impairment charge of $1.16 billion. These charges have been excluded from the results
of our operating segments.
In 2016, crude oil prices have continued to decline, reaching a twelve-year low in the first quarter. Although our
visibility remains limited, we are expecting rig activity worldwide to continue to decline throughout the year and
pricing pressures to continue across the globe. At current commodity prices, the global rig count could decline as
much as 30% in 2016, as our customers’ challenges of maximizing production, lowering their overall costs, and
protecting cash flows are now more acute. Our products and services put us in an excellent position to help our
customers achieve their business objectives and to capitalize on opportunities to continue to convert our capabilities
into earnings. While targeting these opportunities, we remain focused on generating positive cash flow by
proactively managing our cost structure, reducing our working capital, and maximizing return on invested capital.