Baker Hughes Q4 2024 Earnings Call Summary

Overall Takeaway

Baker Hughes reported strong Q4 2024 results, setting new records for revenue, free cash flow, and EBITDA. Management's tone was positive, highlighting resilience despite headwinds such as the U.S. LNG permitting moratorium and softening oilfield service activity. The company is bullish on natural gas infrastructure, LNG, and new energy solutions, while forecasting slightly lower upstream spending for 2025.

Management Comments

1. Drilling, Frac Crews & Completions

• No explicit mention of rig counts or frac crew numbers, but company emphasized mature asset solutions and artificial lift technologies for production optimization.

• Eni awarded Baker Hughes a multi-year contract to unlock bypass reserves in a European development using rotary steerable drilling.

• Baker Hughes booked multiple awards in the Middle East for coiled tubing services, drilling fluids, and completion fluids.

• Brazil remained strong, with Petrobras awarding contracts for 48 miles of flexible pipe (follows 43 miles awarded in Q3).

2. Natural Gas Market & Impact on Operations

• Baker Hughes is bullish on natural gas, LNG, and infrastructure expansion.

• Key Data:

  • Wood Mackenzie projects U.S. natural gas demand to grow by 20 Bcf/d (~18%) by 2030.

  • Global LNG demand is expected to drive 100 MTPA of final investment decisions (FIDs) between 2024-2026.

  • 2024 LNG FIDs were only 17 MTPA, so an acceleration in 2025-2026 is expected.

• LNG remains strong despite the U.S. permitting moratorium. The company booked:

  • $2.1 billion in LNG equipment orders for 2024.

  • Venture Global order for modularized LNG Systems and Power Island.

  • Bechtel contract for Woodside Energy’s Louisiana LNG project, including two liquefaction trains (11 MTPA capacity).

• Saudi Arabia’s gas infrastructure buildout accelerating:

  • Secured contract for gas compression equipment in Jafurah gas field Phase 3.

  • Baker Hughes now supplying 24 electric motor-driven compressors and 14 additional compressors to Jafurah.

3. Oil Market & Impact on Operations

• Management expects 2025 upstream spending to decline slightly.

• North America:

  • Spending expected to decline mid-single digits due to operator capital discipline and consolidation.

  • However, Baker Hughes expects to outperform due to its production-weighted portfolio (>50% tied to production).

• International:

  • Spending projected to be flat to slightly down.

  • Softness in Mexico, Saudi Arabia, and the North Sea.

  • Strength expected in Brazil, the Middle East (excluding Saudi Arabia), and Sub-Saharan Africa.

• Offshore markets steady with 7-9 FPSOs per year expected.

4. Energy Infrastructure (Pipelines, LNG, Other)

• Saudi Arabia’s gas infrastructure buildout accelerating, with contracts in the Jafurah field and Master Gas System expansion.

• Multiple LNG orders secured, including:

  • Venture Global for Plaquemines LNG (long-term service agreement for Phase 1 & 2).

  • NextDecade Rio Grande LNG (25-year service agreement).

  • Bechtel for Woodside Energy’s Louisiana LNG project (11 MTPA liquefaction trains).

• New pipeline expansion projects being discussed across the Middle East, Africa, North America, and Latin America.

5. New Technologies & Innovations

• AI-driven drilling optimization:

  • Baker Hughes signed an agreement with AIQ, ADNOC, and CORVA for an AI-powered rate of penetration (ROP) optimization tool.

  • Uses real-time analytics to adjust weight on bit, RPM, and other parameters.

• Gas turbine technology expansion:

  • NovaLT turbines seeing strong demand, expected to double orders in 2025.

  • Growth driven by data center power needs and behind-the-meter industrial solutions.

• Digital & AI-driven monitoring growth:

  • iCenter monitoring capabilities now covering 1,800+ units.

  • Digital orders for Gas Tech Services grew 60% in 2024, expected to double by 2026.

• Decarbonization & emissions control:

  • Flare gas reduction projects in the Middle East.

  • Direct Air Capture (DAC) technology, Mosaic, being developed.

  • NET Power investment to support zero-emission natural gas power plants.

6. Customer Focus & Regional Strategy

• Natural gas & LNG customers include:

  • Venture Global, Bechtel, NextDecade, SOCAR (Azerbaijan), and Aramco (Saudi Arabia).

• Key regional strengths:

  • Middle East: Strong in gas infrastructure (Jafurah, pipelines).

  • North America: LNG export projects & production optimization.

  • Brazil: Strong in offshore, Petrobras contracts.

  • Sub-Saharan Africa: Emerging growth in upstream & infrastructure.

Q&A Highlights

1. 2025 Outlook for Orders & Revenue

• Baker Hughes expects $13.5B in Industrial & Energy Technology (IET) orders in 2025.

• LNG orders expected to rebound strongly after a 65% decline in 2024.

• NovaLT turbines demand growing in data centers and behind-the-meter power solutions.

2. Oilfield Services (OFSE) Strategy

• OFSE revenue to decline slightly (-4%) in 2025, but margins are improving.

• Production-focused portfolio (artificial lift, chemicals, mature asset solutions) expected to be more resilient.

• OPEC+ spare capacity and North America capital discipline remain headwinds.

3. Gas Technology Growth Drivers (2025-2027)

• Four key revenue accelerators:

  1. Better mix (more LNG services, which have higher attachment rates).

  2. Price increases in services & upgrades.

  3. Digital monitoring expansion (AI-driven solutions like Cordant platform).

  4. Equipment upgrades as customers move from uptime-maximization to efficiency optimization.

• LNG serviceable installed base expected to increase by 50% through 2030.

4. Margins & Free Cash Flow Targets

• IET margins expected to hit 20% by 2026.

• OFSE margins expected to reach 20% in 2025.

• 45%-50% free cash flow conversion target maintained for 2025.

5. Capital Allocation & M&A

• Dividend increased 10%, fourth consecutive annual increase.

• Committed to returning 60%-80% of free cash flow to shareholders.

• M&A strategy remains focused on small tech acquisitions, particularly in new energy.

Key Takeaways for Commodity Analysts

• Bullish on LNG & natural gas infrastructure, but U.S. permitting moratorium slowed 2024 orders.

• Mature asset solutions & production optimization drive resilience in OFSE amid weaker upstream spending.

• Baker Hughes sees oil activity softening slightly in 2025, particularly in Saudi Arabia, Mexico, and the North Sea.

• New pipeline & LNG projects in Middle East, Africa, and North America remain key growth drivers.

• Emerging AI, digital monitoring, and gas turbine technologies targeting new industrial markets.