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WesternGeco troubles parents Seismic joint venture between Baker, Schlumberger drags both into red Petroleum News
The world’s largest seismic company, a joint venture between oilfield service titans Baker Hughes and Schlumberger, continues to struggle with minority partner Baker Hughes apparently looking for a way out of its 30 percent share of WesternGeco.
Formed in June 2000 between Schlumberger’s Geco-Prakla and Baker Hughes’ Western Geophysical, WesternGeco was largely responsible for dragging both service companies into the financial red during the 2003 third quarter.
Schlumberger took an after-tax charge of $205 million and Baker Hughes an after-tax charge of $151.2 million on WesternGeco, the companies reported during the week of Oct. 24. They amounted to non-cash charges or write downs on the value of the joint venture company, reflecting the sorry state of a seismic industry with excessive capacity.
“We certainly have been concerned about erosion of the (seismic) market,” Michael Wiley, Baker Hughes’ chief executive officer, said in a conference call with analysts. “The competitive landscape is such that there’s really a lot of pressure on pricing.”
Wiley, a former ARCO Alaska president, said that while Baker Hughes has no immediate plans to divest its share in WesternGeco, the company would be looking to “exit” the joint venture in the future, presumably when market conditions improve.
Of the $151.2 million in Baker Hughes impairments taken on WesternGeco, $105.9 million was for the multi-client seismic library and $45.3 million for the overall carrying value of the joint venture. The company incurred another $39.3 million charge for discontinued operations on the sale of Bird Machine, Baker Hughes’ non-oilfield operation, to Austria’s Andritz.
Including charges, Baker Hughes weighed in with a 2003 third-quarter net loss of $98.8 million or 29 cents a share, compared to net income of $81.6 million or 24 cents in the prior quarter and $64.7 million or 19 cents in the year-ago third quarter. Earnings estimates for fourth quarter down On sluggish Gulf of Mexico activity and soft U.S. service pricing, investment banks RBC Capital Markets, Lehman Brothers and Deutsche Bank all lowered Baker Hughes earnings estimates for the 2003 fourth quarter to 28 cents per share from a previous 29 to 32 cents a share.
Lehman reported to its investors that while Baker Hughes “has done a good job improving profitability and lowering debt,” the company’s revenue and earnings growth would “lag” its competitors.
In addition to its $205 million impairment on WesternGeco, Schlumberger recorded an $86 million charge related to the early retirement of European debt. The company reported a 2003 third-quarter net loss of $55.3 million or 9 cents per share, compared to a profit of $172.8 million or 30 cents per share for the same period last year.
Andrew Gould, Schlumberger’s chief executive officer, said in a prepared statement that the overall oilfield services market in North America “is still in a state of overcapacity, and pricing pressure is likely to remain despite some regional bright spots.”
In forming WesternGeco three years ago, Schlumberger gave then financially troubled Baker Hughes $500 million in cash for a 70 percent share of the joint venture. Baker Hughes used the cash to pay down debt. The deal also freed up about $100 million a year in working capital for Baker Hughes and allowed the company to focus on its remaining business units.
Western Geophysical, Baker Hughes’ contribution to the joint venture, had been a thorn in the side of Baker Hughes since the company had acquired parent Western Atlas in a $4.5 billion stock swap two years earlier. In the fourth quarter of 1999, Baker Hughes took a $130 million restructuring charge on Western Geophysical, which at the time had fallen victim to a price downturn and resulting slowdown in seismic activity.
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