Do You Really Want to Buy Oilfield Services?

Halliburton (NYSE: HAL), the second-largest participant in the group, led off with mediocre results, but did manage to beat expectations. It was followed by Weatherford (NYSE: WFT), which also didn't set the world on fire, and Schlumberger (NYSE: SLB), which took a tumble.

And now Baker Hughes (NYSE: BHI)
has told us about its quarter, which turned out to be unimpressive
enough to have Mr. Market drop the company's shares by nearly 6% on
Wednesday. For the quarter, the company generated net income of $55
million, or $0.18 per share, a major slide from last year's $429
million, or $1.39 per share.

As you probably know, Baker Hughes is in the process of acquiring its fellow oilfield service company BJ Services (NYSE: BJS).
The $5.5 billion transaction, which could close as early as the end of
2009, will represent a 16.3% premium for BJ Services shareholders.

But let's return to Baker Hughes' most recent quarter. With the
company in the midst of transforming its emphasis to a geographic
orientation, rather than a product line concentration, it was forced to
deal with extra costs to insure the smoothness of what really is a
major change.

According to the company's CEO
Chad Deaton, North America margins rebounded from second-quarter lows.
And as he also noted, "Aggressive cost cutting in the first half of
2009 enabled us to absorb additional price decreases and improve
profitability on modest activity increases."

And then there was the international picture, which, as Deaton
observed, produced results that "were disappointing with revenue less
than expected and price discounting greater than expected." In fact, of
the four regions that the company now recognizes, all but our own
continent saw revenue declines both year on year and sequentially.
However, Deaton also said that "internationally, we believe that
customer spending reached its low point this quarter," so things should
be looking up from here.

But Baker Hughes isn't alone. Even the king of the deepwater drillers, Transocean (NYSE: RIG), recorded lower-than-expected results -- although its sidekick Diamond Offshore (NYSE: DO) produced a solid quarter.

As to Baker Hughes, my advice to my Foolish friends is to give the
company a wide berth until its BJ purchase is completed and oilfield
services in general return to favor.

© 2009 UCLICK, L.L.C.