Baker Hughes CEO: Portfolio Well Positioned for LNG, Energy Transition

Whether the energy transition unfolds rapidly or at a crawl, Baker Hughes expects its portfolio to benefit, particularly as it taps into the growing global LNG market. 

“While there is a growing consensus that the energy transition will likely take longer than many expected, our unique portfolio is set to benefit—irrespective of how quickly the energy transition develops,” Baker Hughes Chairman and CEO Lorenzo Simonelli said during an Oct. 26 conference call discussing the company’s third-quarter 2023 results. “We definitely see that the transition is complicated. We've always said that, and I think there was an eagerness that it should happen overnight.”

A faster energy transition will drive growth across the company’s climate technology solutions segment while a slower energy shift will extend business for the Oilfield Services & Equipment (OFSE) segment, he said. The company’s strategy will allow it to grow regardless of the transition’s pace. 

A more balanced portfolio will also better help Baker Hughes’ earnings in a business that has faced remarkable price volatility in recent years. This quarter, the company reported $518 million net income on $6.6 billion in revenue. 

CFO Nancy Buese said the company aims to return between 60% and 80% of free cash flow to investors. Other priorities for that capital include maintaining a strong balance sheet, investing in technology and targeted acquisitions, she said.

Upstream segment

For now, though, more than half of the company’s third-quarter revenue was generated by the OFSE segment. The segment recorded $3.95 billion in revenues for the quarter, up from $3.88 billion in the second quarter and surpassing the $3.4 billion generated in third-quarter 2022. 

Simonelli said he expects upstream spending to grow into 2024, led by the international and offshore markets. In the third quarter, Baker Hughes won contracts for 21 subsea trees, of which 11 are destined for Angola and seven for Vår Energi’s Balder Field on the Norwegian Continental Shelf. 

IET segment

Simonelli sees growth potential for the company’s Industrial & Energy Technology (IET) segment. IET includes the gas tech equipment Baker Hughes provides for LNG projects based on expected LNG project final investment decisions (FID) expected this year and next.

So far in 2023, more than 50 million tonnes per annum (mtpa) of capacity has reached FID with at least 15 mtpa more in projects on track to reach FID by year’s end, he said.

Baker Hughes expects to book orders for about 80 mtpa in 2023, given that some orders are placed before a project reaches FID, he said.

Current LNG nameplate capacity is at 490 mtpa, with 90% utilization, which he said reflects a tight market. Demand is expected to increase by 3% in 2024, but only 15 mtpa will be added, he said. 

“The project pipeline remains strong both in the U.S. and internationally. Therefore, we expect to see similar year-over-year levels of FID activity in 2024 and could see between 30 to 60 … LNG FIDs in both 2025 and 2026,” Simonelli said. “Based on existing capacity projects under construction and future FIDs in the pipeline, we have line of sight for global LNG installed capacity to reach 800 [mtpa] by the end of 2030.”

Since 2017, he said, the industry has sanctioned 204 mtpa of LNG capacity, and Baker Hughes has provided equipment for 201 mtpa of those projects. 

The IET segment posted $4.33 billion in new orders in the third quarter, of which $3.54 billion was for gas tech and the remainder industrial tech. 

By contrast, in the second quarter, the segment saw $3.28 billion in new orders: $2.4 billion for gas tech and $880 million for industrial tech.

A year ago, in the third quarter of 2022, IET received $2.36 billion in new orders, including $1.6 billion for gas tech and $763 million for industrial tech.

Overall, third-quarter 2023 revenues for IET tallied $2.69 billion compared to $2.44 billion in the previous quarter (and $1.97 billion in third-quarter 2022).

Focus through 2030

Simonelli said Baker Hughes’ strategy moving forward is divided into three timeframes. Through 2025, the company will aim to transform its core, invest for growth and position for new frontiers. Part of that focus includes further developing and commercializing the company’s new energy portfolio and evolving its digital offerings. 

Through 2027, the company’s focus will shift to investments for the next phase of growth—particularly aiming to solidify Baker Hughes’ presence in new energy and industrial sectors. The company will also leverage its gas tech services growth across the installed equipment base, he said. 

Through 2030 and beyond, Baker Hughes aims to compete across new industrial and energy frontiers, including carbon capture, utilization and sequestration, hydrogen clean power and geothermal, he said. 

“By this time, we expect decarbonization solutions to be a fundamental component and in most cases a prerequisite for energy projects,” Simonelli said. “Regardless of the end market, the need for smarter, more efficient energy solutions and emissions management will have firmly extended into the industrial sector.”

Against that backdrop, the company expects new energy orders to reach $6 billion to $7 billion in 2030 across a much broader customer base, he said.

Baker Hughes’ target range for new energy orders in 2023 ranged between $600 million and $700 million. 

“This is equipment that we’re producing today, and it comes from the existing Baker Hughes technology stack,” he said. 

Citing the U.S. Department of Energy’s recent award of $7 billion in grants for seven hydrogen hubs, he said the opportunity for new energy is “actually coming faster than we anticipated.”

Simonelli said Baker Hughes has a “long history in hydrogen” and said the company expects to provide technology to support the new hubs. 

Management feels “good that hydrogen is going to be an area of focus for Baker Hughes as we continue going forward,” he said.