July 22, 2020 12:45 PM, EDT

Baker Hughes Bracing for Second Wave of COVID-19 Lockdowns

An oil drilling rig stands in Midland, Texas.(Matthew Busch/Bloomberg News)

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Baker Hughes Co. is bracing for a second wave of pandemic-induced lockdowns after the virus crippled economic activity around the world and compounded a historic oil bust.

The world’s No. 2 oilfield services contractor said in a statement on July 22 that worldwide economic contraction probably reached a nadir in the second quarter, but warned that the outlook remains “extremely limited.”

“The risk of a second wave of virus cases, the reinstitution of select lockdowns, and the risk of lingering high unemployment creates an uncertain economic environment that likely persists through the rest of 2020,” CEO Lorenzo Simonelli said in the statement.

Baker Hughes posted an adjusted per-share loss of 5 cents for the period, compared with an average estimate for a penny loss from analysts in a Bloomberg survey. Shares rose 1.2% to $16.51 at 10:45 a.m. in New York after the company reported second-quarter free cash flow of $63 million that trounced forecasts.

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Cost Cuts

Simonelli is shrinking head count and exiting noncore product lines as global drilling is set to slump to the lowest level since the turn of the century. The contractors hired to map underground pockets of oil and drill wells have been among the hardest hit after explorers slashed spending to cope with a market awash in crude.

On July 22, Baker Hughes cut its forecast for international customer spending, telling analysts and investors during a conference call that 2020 drilling and fracking budgets will be 15% to 20% lower this year, deeper than its previous view of a 10% to 15% drop.

After spinning off its U.S. onshore fracking business into BJ Services Inc. several years ago, Baker Hughes trimmed its exposure to shale’s booms and busts. The move has been beneficial to Baker Hughes, which reported overseas sales from its oilfield services business that were three times the size of its North American order book during the second quarter. Meanwhile, BJ Services filed for bankruptcy this week.

More than 100,000 American oil workers have lost their jobs since the downturn began in March, with service companies bearing the brunt. After more than 200 oilfield service providers went under in the past five years, 2020 is shaping up to be the worst, with the highest volume of debt owed during bankruptcy, according to a tally by law firm Haynes & Boone.

Halliburton Co. on July 20 was the first of the world’s biggest service companies to report second-quarter results, blowing away analysts’ expectations for cost cuts while detailing a strategy to role out more technology and look internationally for better revenue growth. Their largest competitor, Schlumberger Ltd., will release results on July 24.

Baker Hughes, Halliburton and Schlumberger all appear on the Transport Topics Top 100 list of the largest private carriers in North America.

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