Oilfield services giant Baker Hughes on Monday disclosed that in reaction to the oil and gas price downturn and the coronavirus pandemic, the company will be taking a non-cash goodwill impairment charge.
The Houston firm said it plans to post a $15 billion impairment charge in the first quarter. The company - one of the largest OFS operators in North America - also expects $1.8 billion in restructuring charges, $1.5 billion of which will be reported in the same quarter.
Baker Hughes stated that it carried out an impairment trial that found that the carrying value of the oilfield services and equipment units surpassed its projected fair value, resulting in an impairment value of $15 billion.
As business conditions deteriorate for the oil and gas sector, Baker Hughes expects to write down its asset value with the said amount, and slash capital spending by over 20 percent from its 2019 rates.
It does not impact the cash flow of the company but could result in a net loss on April 22 when the company reports its first quarter figures.
Market capitalization of the company decreased dramatically in the first three months led by current geopolitical and macroeconomic factors, including the fall of oil prices induced by both excess production and supply, as well as the decrease in demand triggered by the pandemic, the company stated.
Furthermore, the uncertainty surrounding oil demand continues to have a major effect on the operating strategies of its key clients, Baker Hughes noted. Baker Hughes' stock, which was up 3.4 percent late Monday, had fallen almost 60 percent in the first quarter this year.
General Electric Co unloaded 144.1 million shares in Baker Hughes in September last year to the tune of $3 billion in cash to decrease its ownership share of the oilfield services major, from 50.1 percent to 36.7 percent. In its 2019 annual report, Baker Hughes announced that General Electric held a 36.7 percent stake as of December 31.
Baker Hughes (NYSE: BKR) is a multinational energy services firm offering solutions to energy and industrial clients around the world. Founded on a 100-year of experience and with presence in more than 120 countries, its groundbreaking technology is pushing energy forward, making it safer and cleaner for people and the environment.
Baker's impairment charge of $15 billion would not impact the cash flow of the company and is still subject to finalization, management disclosed.
The firm announced last week that the number of active US oil-drilling rigs fell from 58 to 504. That number could however get a boost as OPEC reached a agreement over the weekend to cut production and normalize declining prices.
