Home Energy system Inside Baker Hughes’ vision for the energy transition

Inside Baker Hughes’ vision for the energy transition

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Emily Pickrell, UH Energy Fellow



Technology transitions can be very difficult. Consider the small company 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 let’s move on to the current challenge and strategic decisions faced by the many different players in the energy industry.

Quarterly returns are a way to gauge how players are doing when developing their strategies. But quarterly buggy whip returns in 1900 would not have been particularly instructive about the transformation awaiting the automotive industry.

In a recent Houston Chronicle article on Baker Hughes
BHI
and the oil services industry, energy journalist Kyra Buckley demonstrated a similar lack of foresight. She interpreted a difficult quarter for Baker Hughes as a bad strategy, especially compared to its competitors Halliburton
HAL
and Schlumberger
SLB
.

On paper, the comparison seems overwhelming. Baker Hughes posted a lackluster second-quarter performance of $5 billion in revenue, down 2% from the same period last year.

That’s far less than Halliburton’s stellar season. It reported revenue of $5.07 billion in the last reported quarter, an increase of 36.9% over the same period last year. Schlumberger reported revenue of $6.8 billion, an increase of 20% over the same period last year.

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

Part of the problem, even when drawing comparisons, is to continue to view Baker Hughes as a pure oil services company, when it is so clearly positioning itself to be competitive in the technologies that the energy transition will require.

Right now, Baker Hughes’ bread and butter is oilfield services and equipment, but they understand that the future lies in energy technology, climate change and emissions mitigation – and are taking action. Consequently.

This kind of mischaracterization of Baker Hughes — and other companies taking similar steps — is troubling because it disrupts the metrics by which to measure the progress they are actually making. They have already actively begun to do what will be necessary for others. They are reinventing themselves to meet the energy needs of tomorrow, rather than those of today.

For example, Vikas Mittal raised concerns in Buckley’s article that Baker Hughes bowed to environmental pressure from its investors, rather than focusing on the needs of its oilfield service customers.

“They want to be a tech 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’ income from its oil services increased by 14% compared to the same period last year. This says a lot about his constant commitment to his clients. You don’t deal with non-performers, especially with Halliburton and Schlumberger waiting in the wings.

Mittal’s interpretation of Baker Hughes’ lower yields – and where to lay the blame – also dramatically downplays 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 invest $3.5 billion in the development of direct air capture centers and regulators are busy drafting regulations to cover carbon sequestration at sea , an emerging field of opportunity for companies with skills like Baker’s. Hughes. The government takes limiting carbon emissions seriously, and smart people in the energy industry are actively responding accordingly.

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

The metaphorical roads are being set as we speak of a huge leap in technology, and Baker Hughes is positioning herself to be part of it. It recognizes that the same type of geological and geophysical data will be needed to develop these storage sites, for example. His services will be needed – desperately needed in years to come, in a way that greater expertise in oilfield extraction will not.

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

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

Ultimately, the question for oil services is whether to continue with a short-term tactical approach rather than a longer-term strategic vision.

Baker Hughes is positioning himself for the future and is suffering in the short term. We will see how customers and investors react in the future.

Transitions are tough, but it’s really hard to buy a buggy whip today!


Emily Pickrell is a veteran energy journalist, with over 12 years of experience covering everything from oil fields to industrial water policy to Mexico’s latest climate change laws. Emily has reported on energy issues in the US, Mexico and the UK. Prior to journalism, Emily worked as a policy analyst for the US Government Accountability Office and as an auditor for the international aid organization CAR.

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