Baker Hughes plans $15 billion impairment, citing coronavirus demand hit

Baker Hughes said Monday it will report a $15 billion impairment charge, larger than the company's current market capitalization value, as the decimated oilfield services sector adjusts to demand collapse triggered by the coronavirus pandemic.

Baker Hughes said in a statement it will record the goodwill charge in the first quarter after the impacts of the pandemic led the company to perform an interim quantitative impairment test.

Apart from the impairment charge, Baker Hughes also will cut its 2020 capital expenditure budget by more than 20% from last year down to less than $1 billion, it said. Baker Hughes highlighted the impairment won't impact cash flow and the company "continues to maintain solid financial strength and liquidity."

A Baker Hughes spokesman declined further comment.

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With the coronavirus pandemic causing global oil demand to plunge by at least 20 million b/d, global oilfield activity is grinding to a halt in much of the world, especially in North America.

The US oil and natural gas rig count fell by 80 to 641 last week, the biggest decline in more than five years, as the industry sheds rigs and jobs and slows activity, especially from the Permian Basin, rig data provider Enverus said April 9.

Baker Hughes' stock market value has plunged nearly 50% since the beginning of this year, dropping the Houston services firm down to a market capitalization value of about $13.7 billion.

The last time oil prices busted in late 2014, Baker Hughes was the subject of a hostile takeover by archrival Halliburton that prevented Baker Hughes from making faster adjustments during the industry downturn.

"This time around [Baker Hughes] can respond quickly to adjust its cost structure, has better systems in place to make faster decisions, and is closer to its customer base," said energy analyst James West, of Evercore ISI, in a note Monday.

SERVICES SECTOR SUFFERS

Many other oilfield services firms are cutting costs and large swaths of jobs, but Baker Hughes is the first to announce such a large impairment charge during the pandemic.

Halliburton, the North American fracking leader, is suffering the most of the big three oilfield services firms on Wall Street. Halliburton's stock is down 67% this year down to a market cap of just $7.2 billion. Halliburton is cutting or furloughing several thousand jobs across the US.

Industry leader Schlumberger is down 60% to a market cap of $22.5 billion. However, Schlumberger already recorded a large $12.7 billion impairment charge last fall.

Only a few oilfield services firms have filed for bankruptcy protection since the beginning of March, including Pioneer Energy Services and Carbo Ceramics. Some of the biggest hits are being absorbed by the smaller- and mid-sized drillers and frackers.

One of the leading drilling firms, Nabors Industries, has seen its stock plunge almost 90% to a market cap of just $140 million with its stock trading for less than 40 cents per share.

Another competitor, Patterson-UTI Energy, is down about 75% to a market cap of less than $500 million.