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Major global energy technology company, Baker Hughes has predicted that annual global spending by oil and gas producers would decline modestly this year, with growth in Latin America, offshore Africa, and North America land offset by lower spending in Europe and the Middle East.
The Middle East conflict has dominated energy markets this year, with repeated flare-ups in tensions between the U.S. and Iran forcing producers to take a more cautious stance instead of increasing drilling activity.
“Customers remain focused on maximizing production from existing assets while preserving flexibility to respond to evolving market conditions,” CEO Lorenzo Simonelli said on a conference call with analysts after the company reported earnings on Sunday.
Shares of the oilfield services provider were up more than 6%, after it beat quarterly profit estimates, with industrial and energy technology orders doubling year-over-year to a record $7.1 billion. But Baker warned that the IET segment is expected to face a 1 per cent-2 per cent revenue hit from the disruptions caused by the conflict.
The company forecast third-quarter revenue from the IET segment between $3.17 billion and $3.47 billion, below analysts’ expectations of $3.79 billion, according to data compiled by LSEG.
“While the overall impact from Middle East disruptions should remain modest, we expect some increase in logistics and inflationary pressures at our regional facilities during the third quarter,” CFO Ahmed Moghal said.
However, Moghal added the impact of the Iran war is expected to be offset by strength in regions outside the Middle East.
In North America, it expects further seasonal recovery in the third quarter, with Brazil and Mexico driving growth in Latin America.
Baker Hughes is also relying on resilient growth areas such as LNG infrastructure and power grid upgrades to cushion volatility in oil prices for oilfield contractors.
The company said it would further expand its gas turbines and generator capacity, which is expected to come online by 2029, supporting nearly $5 billion in annual power systems revenue opportunity