Baker Hughes Inc.BHI

Morningstar Rating

Stock Research and Analysis

by Stephen Ellis

We like Baker Hughes' systematic approach to managing the commodity cycle. Its focus on obtaining a fair return on investment for shareholders and its reasoned approach to developing technology has paid dividends. The company is focusing on building Read more

Bulls Say

Baker Hughes' technology provides a compelling value for customers. For example, the time required to drill extended-reach wells at Sakhalin 1 has been reduced by more than 50% since 2003.

The firm's Equalizer technology delays and eliminates water coning in wells, and this boosts ultimate recovery and has doubled production in some cases. Key customers, such as Saudi Aramco, are heavy buyers of the technology.

We expect the company to grow quickly off its small revenue base in Russia and the Middle East, which will result in market-share gains.

The company is positioned for strong growth in deep-water fluids, as its Performax fluid has very high market share for high-pressure, high-temperature wells in the Gulf of Mexico. Read more

Bears Say

The company's strategic errors have forced the company to play catch-up in key markets, such as Russia and the Middle East. Not until late 2006 did Baker Hughes appoint a president for its Russian operations.

Baker Hughes' international reorganization will become more complicated with the addition of BJ Services. Competitors may be able to win high-profile contracts during the merger-integration period.

The firm's patent portfolio strength is the weakest out of its main competitors, which casts doubts on the success of its systematic approach to technology development.

Baker Hughes does not own any rigs, which can put it at a disadvantage compared with its peers for winning integrated-project-management work. Read more

Strategy

The company's strategy is to differentiate its services from its competitors' by offering better service quality and technology. Its strict project discipline lets it focus on the growth opportunities Read more

Management

CEO Chad Deaton has led the company since 2004 and generally has done well for shareholders during his tenure. His total compensation in 2008 was a reasonable $12.7 million, which includes $4.8 million in performance unit award payments for guiding Read more

Profile

Baker Hughes provides a wide variety of oil field services, such as directional drilling, oil field chemicals, drill bits, and electronic submersible pumping systems. It Read more

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