WEBVTT - Baker Hughes CEO Lorenzo Simonelli Talks Barclays Energy Investor Conference

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Berkley's Energy Investor Conference kicking off today in New York.

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<v Speaker 2>Baker Hugh CEO Lorenzo similarly attending following a better than

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<v Speaker 2>expected earnings report earlier this summer, the company seeing high

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<v Speaker 2>demand for its drilling services and equipment in international markets

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<v Speaker 2>and places to say that. Joining us around the table

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<v Speaker 2>is Lorenzo. Good morning, sir, great to be with you.

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<v Speaker 2>Let's talk about the outlook you raised the midpoint of

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<v Speaker 2>that outlook, competitors did not a similar story with competitors, though,

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<v Speaker 2>was this better international bankdrop compared to say, what's happening domestically?

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<v Speaker 2>What explains that divide does emergent right now?

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<v Speaker 3>I think, first of all, as you look at Baker Hughes,

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<v Speaker 3>the strength of our portfolio is much broader than just

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<v Speaker 3>oil field services, and so as you look at the

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<v Speaker 3>results that we posted in second quarter and also the

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<v Speaker 3>increase in guidance, it's really based on that total portfolio

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<v Speaker 3>capability that we have that extends into rotating equipment, compression

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<v Speaker 3>and INDUS short sectors as well. As you look at

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<v Speaker 3>the international markets, again, they are going to continue to grow.

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<v Speaker 3>And again we said at the beginning of the year

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<v Speaker 3>we would see high single digit growth in the international markets.

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<v Speaker 3>We retain that view as we go into the second half,

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<v Speaker 3>and as we go into twenty twenty five, the growth

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<v Speaker 3>will still be there, it will decelerate, and it's really

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<v Speaker 3>driven by the demand that you're seeing internationally. When you

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<v Speaker 3>look at the exports, for example, from Saudi Arabia, a

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<v Speaker 3>lot of that goes to other countries, very little comes

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<v Speaker 3>into North America or goes into the developed marketplace. It

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<v Speaker 3>really is a developing market aspect, and the growing population

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<v Speaker 3>and demand for energy globally is increasing.

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<v Speaker 2>Can you talk to us about the headwinds domestically and

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<v Speaker 2>where they're coming from. Is it off the back of

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<v Speaker 2>the consolidation we've seen, we see more careful spending. Is

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<v Speaker 2>it off the back and lower prices? What's driving it?

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<v Speaker 3>There's definitely a lot of the aspects of consolidation that

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<v Speaker 3>have taken place. There's efficiency also that you're seeing within

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<v Speaker 3>the puction which has enabled production to stay relatively flat

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<v Speaker 3>and increasing in some cases. And so domestically, I think

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<v Speaker 3>again we continue to see weakness as we look at

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<v Speaker 3>the second half of twenty twenty four, and then also

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<v Speaker 3>in twenty twenty five, really looking at North America to

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<v Speaker 3>be flatish. The gas market may be increasing somewhat, but

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<v Speaker 3>North America is really the operators are being very pragmatic

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<v Speaker 3>with their balance sheet, and again, capital discipline is the

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<v Speaker 3>name of the game.

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<v Speaker 1>Yeah, you need a lot less capital now to produce

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<v Speaker 1>even more oil than you had in the past. But

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<v Speaker 1>you think it's going to be flat. Some of the

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<v Speaker 1>numbers we've run actually see thirteen point nine million barrels

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<v Speaker 1>a day coming from North America and then fourteen in

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<v Speaker 1>twenty twenty five. Do you think that's an accurate trajectory?

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<v Speaker 3>Again, if you look at between thirteen point nine and fourteen,

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<v Speaker 3>you're looking at a very slight difference, and again it's

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<v Speaker 3>driven by the efficiency. It's very transactional in North America.

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<v Speaker 3>So I think it's early to call right now and

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<v Speaker 3>will continue to monitor it. Baker Hughes is much more

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<v Speaker 3>focused on the production side and also the chemical side,

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<v Speaker 3>and I think what we are seeing is really a

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<v Speaker 3>focus on existing wells and also improving recovery rates from

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<v Speaker 3>existing wells, and that's where the mature assets solutions that

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<v Speaker 3>we provide actually have a huge opportunity and It's actually

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<v Speaker 3>important to remember seventy percent of the world's production comes

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<v Speaker 3>from mature wells, and that's a well that's been in

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<v Speaker 3>operation for over twenty five years or has fifty percent

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<v Speaker 3>of its reserve depleted. If you're able to increase the

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<v Speaker 3>reserve recovery by one percent, you're going to add two

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<v Speaker 3>to three years of the production required globally. So there's

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<v Speaker 3>a big focus on capital discipline and maximizing the recovery

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<v Speaker 3>rates from the mature assets that are available.

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<v Speaker 1>You also mentioned gas. Can we talk about liquefied natural

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<v Speaker 1>gas because yesterday we actually saw the Energy Department go

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<v Speaker 1>ahead with an export licen Since because the Biden mormonitorium

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<v Speaker 1>on the export license, the courts have pushed back. Is

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<v Speaker 1>that a sign that potentially we could see more LERG

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<v Speaker 1>come online.

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<v Speaker 3>First of all, very pleased that the license was given

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<v Speaker 3>and congratulations to the team there. I think as you

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<v Speaker 3>look at the global expectations, it's that the monitorium actually

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<v Speaker 3>ceases in twenty twenty five. As you look at the

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<v Speaker 3>LNG demand is expected to increase. We've predicted that by

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<v Speaker 3>twenty thirty we need an installed based capacity of eight

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<v Speaker 3>hundred million tons per annum and the US can contribute

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<v Speaker 3>to that. That being said, you know, you're never sure

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<v Speaker 3>until it's done, and international projects are continuing to go

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<v Speaker 3>forward as well, so the LNG will be available and

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<v Speaker 3>hopefully the United States also participates as it's got plenty

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<v Speaker 3>of gas that it can explore. A big focus on

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<v Speaker 3>this program over the last I would say six months

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<v Speaker 3>or so, I has been the burden that's going to

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<v Speaker 3>emerge on the energy grid in this country in the

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<v Speaker 3>next several years. Every single day we talk about Nvidia

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<v Speaker 3>and Capex spend coming from some major tech players spending money,

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<v Speaker 3>throwing money at data centers. Can you walk us through

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<v Speaker 3>just the scale of demand you're expecting to see and

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<v Speaker 3>what you're hearing from some of these utility providers and

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<v Speaker 3>some of these companies, these tech firms and the need

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<v Speaker 3>for off grid solutions that you can provide. How big

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<v Speaker 3>is that growth opportunity for you? It is a significant

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<v Speaker 3>growth opportunity. And I think you said earlier this isn't

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<v Speaker 3>just about today. It is a long term trend. If

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<v Speaker 3>you look at some of the statistics out there, generator

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<v Speaker 3>of AI, the consumption of electricity by data centers, it's

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<v Speaker 3>expected to double by twenty twenty six. That's going from

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<v Speaker 3>two percent to four percent of the electricity usage. Think

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<v Speaker 3>about that, that's the same amount of electricity that Japan

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<v Speaker 3>uses on an annual basis. So from an installed capacity perspective,

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<v Speaker 3>it's a significant increase. What do we have as a

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<v Speaker 3>challenge grid stability and also I live in Houston today,

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<v Speaker 3>I have power outages on a continuous basis and we

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<v Speaker 3>need off grid solutions and that's where distributed power comes in.

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<v Speaker 3>That's where opportunities for modular capabilities of gas turbines that

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<v Speaker 3>are packaged, smaller off grid and they provide the stability

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<v Speaker 3>to the data centers for ongoing operations. Because the other

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<v Speaker 3>important aspect is intermittency is important because a data center

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<v Speaker 3>can't go down, so you need to have that consistency

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<v Speaker 3>of power generation.

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<v Speaker 2>What does growth look like in this area currently and

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<v Speaker 2>what will growth look like in the years to come

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<v Speaker 2>for you exclusively specifically for us.

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<v Speaker 3>If you look at the industrial gas turbines that we

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<v Speaker 3>provide significant opportunity. Just look at the ratio of the

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<v Speaker 3>increase on the electricity utilization from two to four percent.

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<v Speaker 3>So we're looking and working with the hyperscalers looking at

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<v Speaker 3>the ecosystem, we're looking at the opportunity of mini gas

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<v Speaker 3>turbans being sold into this market.

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<v Speaker 2>What's the overall contribution to your revenue mix do you

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<v Speaker 2>expect to come from that in the next, say several years.

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<v Speaker 2>The reason I asked that question is we've seen a

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<v Speaker 2>big rally in utility companies in line with the rally

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<v Speaker 2>we've seen in AI firms, and if we're to sit

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<v Speaker 2>here today and think about the changing characteristics of your stock,

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<v Speaker 2>I need to know what the contribution from that area

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<v Speaker 2>would be to the overall top and bottom line. What's

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<v Speaker 2>that going to look like in years to come.

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<v Speaker 3>As we look at it, and again, this could be

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<v Speaker 3>from five hundred megawatts to one point five gig watts,

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<v Speaker 3>and that's what we're looking at from a scaling perspective,

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<v Speaker 3>and again from a dollar perspective, it's going to range

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<v Speaker 3>based on five hundred million to potentially larger, and it's

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<v Speaker 3>going to come over a series of years. As we

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<v Speaker 3>go forward. We look at it as a major new

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<v Speaker 3>area that we can focus on. We've participated before and

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<v Speaker 3>we've played in distributed power generation, and we look at

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<v Speaker 3>this as a growth factor for Baker hues.

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<v Speaker 1>A big concern to the US energy industry has always

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<v Speaker 1>been the cyber attacks, whether it's colonial, it's really happened

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<v Speaker 1>with Halliburton. Have you seen any impact.

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<v Speaker 3>So we haven't seen any impact. Again, though we're very vigilant. Obviously,

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<v Speaker 3>cybersecurity is a big concern for everybody, and we're all

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<v Speaker 3>taking the measures accordingly to put the controls in place

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<v Speaker 3>and very much vigilant on a daily basis.

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<v Speaker 1>What does that look like meaning being vigilant? Is it

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<v Speaker 1>having the proper systems in place? Is there a lot

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<v Speaker 1>of communication with the US government.

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<v Speaker 3>There's definitely a communication that takes place across the sector,

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<v Speaker 3>and there's also trade associations that discuss it. From a

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<v Speaker 3>standpoint of vigilance, it means making sure that we're doing

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<v Speaker 3>our own testing on our own systems, making sure that

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<v Speaker 3>we're putting in the controls, we're patching with the new

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<v Speaker 3>security that's available, and also doing our own fishing exercises.

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<v Speaker 3>And so we've got a team that continuously Red Team,

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<v Speaker 3>Blue Team, and we test our own systems. But I

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<v Speaker 3>also say you can never be too careful, and you've

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<v Speaker 3>got to stay vigilant, and you've got to be prepared.

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<v Speaker 2>You've got a really busy day ahead of you. Before

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<v Speaker 2>we let you go. This conversation's got to time arise

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<v Speaker 2>in multiple decades the time horizing of this market. At

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<v Speaker 2>the moments about five minutes, Can we just reflect on

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<v Speaker 2>yesterday's price action? What's going on include energy markets at

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<v Speaker 2>the moment. It's a real tangible concern from your side

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<v Speaker 2>around demand in China. What's it all about.

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<v Speaker 3>I think you're always going to have volatility on a

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<v Speaker 3>daily basis, and it's something we deal with in the

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<v Speaker 3>business world. At the same time, leading a company, you've

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<v Speaker 3>got to focus on the fundamentals and the fundamentals of

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<v Speaker 3>the long term tra directory and make the right investment decisions.

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<v Speaker 3>That's what we're doing at Baker Hughes. And if you

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<v Speaker 3>look at the macro tailwinds, I think it's undeniable that

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<v Speaker 3>energy demand is continuing to increase as you look at

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<v Speaker 3>the population and you look at the development of nations.

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<v Speaker 3>You also look at developed nations that are now seeing

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<v Speaker 3>that they don't have enough energy as well, such as

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<v Speaker 3>here in the United States. So we look at the

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<v Speaker 3>macro aspect and we're definitely seeing positive tailwinds.

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<v Speaker 2>Do you feel like the attitude of fossil fuels has

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<v Speaker 2>shifted in the last twelve months. Do you think government's

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<v Speaker 2>particular in the West, have had a bit of a

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<v Speaker 2>reality check.

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<v Speaker 3>I think there is an understanding that it's not just

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<v Speaker 3>about an energy transition, it's also about an energy expansion,

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<v Speaker 3>and it's not about the fuel type. It's about reducing emissions.

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<v Speaker 3>And that's where gas plays a key role, because it

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<v Speaker 3>is abundant, it's available, and you need affordable, secure, reliable energy.

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<v Speaker 2>Lorenzo, appreciate it. You got a long down ahead of you.

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<v Speaker 2>Thanks for your time. Thank you, Thank you, sir Lorenzo. Similarly,

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<v Speaker 2>there the baker Hughes c EO