Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Berkley's Energy Investor Conference kicking off today in New York.
Speaker 2: Baker Hugh CEO Lorenzo similarly attending following a better than
Speaker 2: expected earnings report earlier this summer, the company seeing high
Speaker 2: demand for its drilling services and equipment in international markets
Speaker 2: and places to say that. Joining us around the table
Speaker 2: is Lorenzo. Good morning, sir, great to be with you.
Speaker 2: Let's talk about the outlook you raised the midpoint of
Speaker 2: that outlook, competitors did not a similar story with competitors, though,
Speaker 2: was this better international bankdrop compared to say, what's happening domestically?
Speaker 2: What explains that divide does emergent right now?
Speaker 3: I think, first of all, as you look at Baker Hughes,
Speaker 3: the strength of our portfolio is much broader than just
Speaker 3: oil field services, and so as you look at the
Speaker 3: results that we posted in second quarter and also the
Speaker 3: increase in guidance, it's really based on that total portfolio
Speaker 3: capability that we have that extends into rotating equipment, compression
Speaker 3: and INDUS short sectors as well. As you look at
Speaker 3: the international markets, again, they are going to continue to grow.
Speaker 3: And again we said at the beginning of the year
Speaker 3: we would see high single digit growth in the international markets.
Speaker 3: We retain that view as we go into the second half,
Speaker 3: and as we go into twenty twenty five, the growth
Speaker 3: will still be there, it will decelerate, and it's really
Speaker 3: driven by the demand that you're seeing internationally. When you
Speaker 3: look at the exports, for example, from Saudi Arabia, a
Speaker 3: lot of that goes to other countries, very little comes
Speaker 3: into North America or goes into the developed marketplace. It
Speaker 3: really is a developing market aspect, and the growing population
Speaker 3: and demand for energy globally is increasing.
Speaker 2: Can you talk to us about the headwinds domestically and
Speaker 2: where they're coming from. Is it off the back of
Speaker 2: the consolidation we've seen, we see more careful spending. Is
Speaker 2: it off the back and lower prices? What's driving it?
Speaker 3: There's definitely a lot of the aspects of consolidation that
Speaker 3: have taken place. There's efficiency also that you're seeing within
Speaker 3: the puction which has enabled production to stay relatively flat
Speaker 3: and increasing in some cases. And so domestically, I think
Speaker 3: again we continue to see weakness as we look at
Speaker 3: the second half of twenty twenty four, and then also
Speaker 3: in twenty twenty five, really looking at North America to
Speaker 3: be flatish. The gas market may be increasing somewhat, but
Speaker 3: North America is really the operators are being very pragmatic
Speaker 3: with their balance sheet, and again, capital discipline is the
Speaker 3: name of the game.
Speaker 1: Yeah, you need a lot less capital now to produce
Speaker 1: even more oil than you had in the past. But
Speaker 1: you think it's going to be flat. Some of the
Speaker 1: numbers we've run actually see thirteen point nine million barrels
Speaker 1: a day coming from North America and then fourteen in
Speaker 1: twenty twenty five. Do you think that's an accurate trajectory?
Speaker 3: Again, if you look at between thirteen point nine and fourteen,
Speaker 3: you're looking at a very slight difference, and again it's
Speaker 3: driven by the efficiency. It's very transactional in North America.
Speaker 3: So I think it's early to call right now and
Speaker 3: will continue to monitor it. Baker Hughes is much more
Speaker 3: focused on the production side and also the chemical side,
Speaker 3: and I think what we are seeing is really a
Speaker 3: focus on existing wells and also improving recovery rates from
Speaker 3: existing wells, and that's where the mature assets solutions that
Speaker 3: we provide actually have a huge opportunity and It's actually
Speaker 3: important to remember seventy percent of the world's production comes
Speaker 3: from mature wells, and that's a well that's been in
Speaker 3: operation for over twenty five years or has fifty percent
Speaker 3: of its reserve depleted. If you're able to increase the
Speaker 3: reserve recovery by one percent, you're going to add two
Speaker 3: to three years of the production required globally. So there's
Speaker 3: a big focus on capital discipline and maximizing the recovery
Speaker 3: rates from the mature assets that are available.
Speaker 1: You also mentioned gas. Can we talk about liquefied natural
Speaker 1: gas because yesterday we actually saw the Energy Department go
Speaker 1: ahead with an export licen Since because the Biden mormonitorium
Speaker 1: on the export license, the courts have pushed back. Is
Speaker 1: that a sign that potentially we could see more LERG
Speaker 1: come online.
Speaker 3: First of all, very pleased that the license was given
Speaker 3: and congratulations to the team there. I think as you
Speaker 3: look at the global expectations, it's that the monitorium actually
Speaker 3: ceases in twenty twenty five. As you look at the
Speaker 3: LNG demand is expected to increase. We've predicted that by
Speaker 3: twenty thirty we need an installed based capacity of eight
Speaker 3: hundred million tons per annum and the US can contribute
Speaker 3: to that. That being said, you know, you're never sure
Speaker 3: until it's done, and international projects are continuing to go
Speaker 3: forward as well, so the LNG will be available and
Speaker 3: hopefully the United States also participates as it's got plenty
Speaker 3: of gas that it can explore. A big focus on
Speaker 3: this program over the last I would say six months
Speaker 3: or so, I has been the burden that's going to
Speaker 3: emerge on the energy grid in this country in the
Speaker 3: next several years. Every single day we talk about Nvidia
Speaker 3: and Capex spend coming from some major tech players spending money,
Speaker 3: throwing money at data centers. Can you walk us through
Speaker 3: just the scale of demand you're expecting to see and
Speaker 3: what you're hearing from some of these utility providers and
Speaker 3: some of these companies, these tech firms and the need
Speaker 3: for off grid solutions that you can provide. How big
Speaker 3: is that growth opportunity for you? It is a significant
Speaker 3: growth opportunity. And I think you said earlier this isn't
Speaker 3: just about today. It is a long term trend. If
Speaker 3: you look at some of the statistics out there, generator
Speaker 3: of AI, the consumption of electricity by data centers, it's
Speaker 3: expected to double by twenty twenty six. That's going from
Speaker 3: two percent to four percent of the electricity usage. Think
Speaker 3: about that, that's the same amount of electricity that Japan
Speaker 3: uses on an annual basis. So from an installed capacity perspective,
Speaker 3: it's a significant increase. What do we have as a
Speaker 3: challenge grid stability and also I live in Houston today,
Speaker 3: I have power outages on a continuous basis and we
Speaker 3: need off grid solutions and that's where distributed power comes in.
Speaker 3: That's where opportunities for modular capabilities of gas turbines that
Speaker 3: are packaged, smaller off grid and they provide the stability
Speaker 3: to the data centers for ongoing operations. Because the other
Speaker 3: important aspect is intermittency is important because a data center
Speaker 3: can't go down, so you need to have that consistency
Speaker 3: of power generation.
Speaker 2: What does growth look like in this area currently and
Speaker 2: what will growth look like in the years to come
Speaker 2: for you exclusively specifically for us.
Speaker 3: If you look at the industrial gas turbines that we
Speaker 3: provide significant opportunity. Just look at the ratio of the
Speaker 3: increase on the electricity utilization from two to four percent.
Speaker 3: So we're looking and working with the hyperscalers looking at
Speaker 3: the ecosystem, we're looking at the opportunity of mini gas
Speaker 3: turbans being sold into this market.
Speaker 2: What's the overall contribution to your revenue mix do you
Speaker 2: expect to come from that in the next, say several years.
Speaker 2: The reason I asked that question is we've seen a
Speaker 2: big rally in utility companies in line with the rally
Speaker 2: we've seen in AI firms, and if we're to sit
Speaker 2: here today and think about the changing characteristics of your stock,
Speaker 2: I need to know what the contribution from that area
Speaker 2: would be to the overall top and bottom line. What's
Speaker 2: that going to look like in years to come.
Speaker 3: As we look at it, and again, this could be
Speaker 3: from five hundred megawatts to one point five gig watts,
Speaker 3: and that's what we're looking at from a scaling perspective,
Speaker 3: and again from a dollar perspective, it's going to range
Speaker 3: based on five hundred million to potentially larger, and it's
Speaker 3: going to come over a series of years. As we
Speaker 3: go forward. We look at it as a major new
Speaker 3: area that we can focus on. We've participated before and
Speaker 3: we've played in distributed power generation, and we look at
Speaker 3: this as a growth factor for Baker hues.
Speaker 1: A big concern to the US energy industry has always
Speaker 1: been the cyber attacks, whether it's colonial, it's really happened
Speaker 1: with Halliburton. Have you seen any impact.
Speaker 3: So we haven't seen any impact. Again, though we're very vigilant. Obviously,
Speaker 3: cybersecurity is a big concern for everybody, and we're all
Speaker 3: taking the measures accordingly to put the controls in place
Speaker 3: and very much vigilant on a daily basis.
Speaker 1: What does that look like meaning being vigilant? Is it
Speaker 1: having the proper systems in place? Is there a lot
Speaker 1: of communication with the US government.
Speaker 3: There's definitely a communication that takes place across the sector,
Speaker 3: and there's also trade associations that discuss it. From a
Speaker 3: standpoint of vigilance, it means making sure that we're doing
Speaker 3: our own testing on our own systems, making sure that
Speaker 3: we're putting in the controls, we're patching with the new
Speaker 3: security that's available, and also doing our own fishing exercises.
Speaker 3: And so we've got a team that continuously Red Team,
Speaker 3: Blue Team, and we test our own systems. But I
Speaker 3: also say you can never be too careful, and you've
Speaker 3: got to stay vigilant, and you've got to be prepared.
Speaker 2: You've got a really busy day ahead of you. Before
Speaker 2: we let you go. This conversation's got to time arise
Speaker 2: in multiple decades the time horizing of this market. At
Speaker 2: the moments about five minutes, Can we just reflect on
Speaker 2: yesterday's price action? What's going on include energy markets at
Speaker 2: the moment. It's a real tangible concern from your side
Speaker 2: around demand in China. What's it all about.
Speaker 3: I think you're always going to have volatility on a
Speaker 3: daily basis, and it's something we deal with in the
Speaker 3: business world. At the same time, leading a company, you've
Speaker 3: got to focus on the fundamentals and the fundamentals of
Speaker 3: the long term tra directory and make the right investment decisions.
Speaker 3: That's what we're doing at Baker Hughes. And if you
Speaker 3: look at the macro tailwinds, I think it's undeniable that
Speaker 3: energy demand is continuing to increase as you look at
Speaker 3: the population and you look at the development of nations.
Speaker 3: You also look at developed nations that are now seeing
Speaker 3: that they don't have enough energy as well, such as
Speaker 3: here in the United States. So we look at the
Speaker 3: macro aspect and we're definitely seeing positive tailwinds.
Speaker 2: Do you feel like the attitude of fossil fuels has
Speaker 2: shifted in the last twelve months. Do you think government's
Speaker 2: particular in the West, have had a bit of a
Speaker 2: reality check.
Speaker 3: I think there is an understanding that it's not just
Speaker 3: about an energy transition, it's also about an energy expansion,
Speaker 3: and it's not about the fuel type. It's about reducing emissions.
Speaker 3: And that's where gas plays a key role, because it
Speaker 3: is abundant, it's available, and you need affordable, secure, reliable energy.
Speaker 2: Lorenzo, appreciate it. You got a long down ahead of you.
Speaker 2: Thanks for your time. Thank you, Thank you, sir Lorenzo. Similarly,
Speaker 2: there the baker Hughes c EO