Inside Baker Hughes’ Vision For The Energy Transition

Emily Pickrell, UH Energy Scholar

Technology transitions can be really difficult. Consider the small firm that made buggy whips for horse-drawn carriages in the late 1800s just before Henry Ford introduced the assembly line that produced the Model T.

Now fast forward to the current challenge, and strategic decisions facing the many different players of the energy industry.

Quarterly returns are one way of evaluating how players are faring as they develop their strategies. But the quarterly returns for buggy whips in 1900 would not have been particularly informative about the transformation awaiting the auto industry.

In a recent article in the Houston Chronicle on Baker HughesBHI
and the oil field services sector, energy journalist Kyra Buckley has shown a similar lack of foresight. She has interpreted a difficult quarter for Baker Hughes to mean a bad strategy, especially when compared to its competitors HalliburtonHAL
and SchlumbergerSLB
.

On paper, the comparison is seemingly damning. Baker Hughes had a lackluster second quarter return of $5 billion in revenue, down 2% from this time last year.

That’s a lot less than Halliburton’s bumper season. It reported revenues of $5.07 billion in the last reported quarter, a 36.9% increase from this time last year. Schlumberger had revenue of $6.8 billion, a 20% increase over this time last year.

It is certainly fair to point out the impact of the Russia-Ukraine war and our country’s sanctions on Russia. As a result, Baker Hughes’ Russian nonoperating facilities did not help its bottom-line last year. (Baker Hughes reported a nonoperating loss of $426 million related to its oilfield services unit in Russia.) Yet again, this decision does not equal bad strategy, but rather, common sense.

Part of the problem in even making comparisons is to continue thinking of Baker Hughes as a pure oilfield services company, when it is so clearly positioning itself to compete in the technologies that the energy transition will demand.

Right now, Baker Hughes’ bread and butter is oilfield services and equipment, but they understand the future is in energy technology, and climate change and emissions mitigation – and are acting on it.

This kind of mischaracterization of Baker Hughes – and other companies making similar moves – is troubling, because it garbles the metrics by which to measure the progress they are actually making. They have already actively started doing what will be necessary for the others. They are reinventing themselves to meet tomorrow’s energy needs, rather than those of today.

For example, Vikas Mittal raised concerns in Buckley’s article that Baker Hughes has given in to environmental pressure from its investors, rather than focusing on its customers’ needs for oil field services.

“They want to be a technology company, they want to be a digital company, they want to be a socially responsible company, they want to be a net-zero company,” Mittal said. “The one thing they don’t want to be is a service company.”

Yet Baker Hughes’ revenues from its oilfield services unit were up 14% from this time last year. That speaks volumes about its consistent commitment to its customers. You don’t do business with non-performers, especially with Halliburton and Schlumberger waiting in the wings.

Mittal’s interpretation of Baker Hughes’ weaker returns – and where to cast blame – also drastically underplays the importance of the need for technology and service in the low-carbon energy system of the future.

By the end of the year, the federal government will be investing $3.5 billion in the development of direct air capture hubs and the regulators are busily writing the regulations to cover offshore carbon sequestration, an emerging field of opportunities for companies with skillsets like those of Baker Hughes. The government is getting serious about reigning carbon emissions and smart folks in the energy industry are actively responding in kind.

The picture is the same for the future of hydrogen. Again, the feds are planning to invest $8 billion in the development of clean hydrogen, an energy source for which Houston and its energy industry are uniquely positioned for leadership.

The metaphoric roads are being established as we speak for a huge technology leap, and Baker Hughes is positioning itself to be part of that. It recognizes that the same kind of geological and geophysical data will be required for developing these storage sites, for example. Its services will be needed – desperately needed in the coming years, in a way that greater expertise in oilfield extraction won’t.

The idea that Baker Hughes, Schlumberger and Halliburton are playing the same game is flawed. Schlumberger and Halliburton had a great quarter, benefitting from soaring oil prices – but depending on traditional oil and gas and nibbling around the edges of the energy transition is playing a short-term, tactical game. They are maximizing earnings now potentially at the expense of their future.

Baker Hughes, Buckley rightly notes, is a leader in liquefied natural gas, which is increasingly being seen as a way to export lower-carbon natural gas. Baker Hughes also has a significant investment in advanced technology which will positions it as well for carbon capture, hydrogen and geothermal markets as they develop and grow.

At the end of the day, the question for oil field services is whether to continue with a tactical, short-term approach rather than a longer-term strategic vision.

Baker Hughes is positioning itself for the future and taking some short-term pain. We shall see how customers and investors respond in the future.

Transitions are hard, but it is really hard to buy a buggy whip today!

Emily Pickrell is a veteran energy reporter, with more than 12 years of experience covering everything from oil fields to industrial water policy to the latest on Mexican climate change laws. Emily has reported on energy issues from around the U.S., Mexico and the United Kingdom. Prior to journalism, Emily worked as a policy analyst for the U.S. Government Accountability Office and as an auditor for the international aid organization, CAR
AR
E.

UH Energy is the University of Houston’s hub for energy education, research and technology incubation, working to shape the energy future and forge new business approaches in the energy industry.