00:00CEO Lorenzo Simonelli says that the outlook for business fundamentals remains unchanged, excluding the ongoing impacts in the Middle East.
00:09Lorenzo Simonelli, chairman and CEO of Baker Hughes, joins us now. Lorenzo, I've got to say, that feels odd to
00:16me to say, hey, everything is unchanged except for a war happening in the Middle East.
00:21Is it really fair to treat this as kind of like a temporary exclusion?
00:25Is that like asking Mrs. Lincoln how the play was otherwise?
00:29Danny, Matt, good to be with you today. And clearly, obviously, a priority for Baker Hughes is the safety and
00:36also the situation for our employees and customers in the Middle East.
00:41And as you know, we are a longer cycle business as well that is looking at the situation that's going
00:48to be coming out of the Middle East conflict.
00:51And we're all hoping for a resolution in a short period.
00:56And again, if you look at what we said on the earnings call, we're assuming there is still continued disruption
01:02in the second quarter.
01:03But as we look to the second half, it being resolved and seeing a return to what is a macro
01:10theme, which is energy demand is going to continue to increase.
01:16And that is a multi-year phenomena that continues from an infrastructure perspective.
01:21And what you're seeing come out of the Middle East situation is an increased focus on energy security.
01:28And so when you think about Baker Hughes, we play in the aspect of power systems infrastructure.
01:35We play in the aspect of being able to provide the hydrocarbon and the extraction of the hydrocarbon.
01:42And so from an energy security perspective, longer term, the tailwinds continue to be positive.
01:49And we all hope for a resolution on the conflict soon.
01:52Yeah, I mean, to be fair, oil prices didn't go as high, nearly as high as had been feared, right?
01:57Brent got to almost 120 and turned around, we're hovering over 100.
02:02But considering the fact that the Strait of Hormuz has been closed for almost two months, that would have been,
02:08previously you would have thought, a nightmare scenario for oil.
02:11We did see dated Brent get to 140, but it's come back down as well.
02:16So is the idea, Lorenzo, that maybe partly because of the work that you do at Baker Hughes, this industry
02:24is just much more resilient than we would have previously thought?
02:29It is more resilient.
02:31There are diversification of supply.
02:34As you've seen, the U.S. has substantially increased its production since the last oil crises that have taken place.
02:43Also, you've seen investments take place.
02:46And we see an increase in upstream investment happening as we proceed into the latter part of this year.
02:54Next year, in other regions, as you think of Latin America, also in North America, as you look at other
03:01regions, Southeast Asia, Africa.
03:04And so the diversity of supply being there.
03:06Also, with the resolution of the conflict, we see the Middle East starting to come back.
03:12And again, the demand is out there.
03:14Just to note, you know, even the Middle Eastern customers are looking beyond the conflict this morning.
03:20We did announce a further contract with Qatar Energy on the LNG expansion of the future and the providing of
03:30equipment and services that are going to enable them to, over the longer term, continue to take up their supply
03:37of LNG.
03:38And I think everybody's looking at this conflict being resolved as quickly as possible.
03:45And then the backdrop of energy demand being continuously strong into the multi-year driven by data centers, AI, also
03:54just the consumption by ourselves around the world increasing.
04:01Lorenzo, just on that, in the event, in an event that we all hope happens, the resolution to the conflict
04:05in the Middle East, what role does Baker Hughes play in getting equipment back online?
04:12We play a fundamental role and we're working closely with the customers that have been impacted.
04:18Again, from a standpoint of the installed base that we have being ready and available to come in and help
04:25them to restart.
04:26It is a gradual process and then also any replacement equipment that's necessary.
04:32And we stand committed to our customers and bringing back online as quickly as possible and supporting them as we
04:39go forward.
04:40And that's the role that we've played in the past and the role that we're going to play going forward.
04:44And also continuously looking for innovative upgrade technologies that can help them actually come on faster.
04:51So, what do you expect that to mean for your earnings, Lorenzo?
04:55I mean, you know, how has the trajectory looked like for Baker Hughes and what do you expect that to
05:01be for the rest of the year?
05:04Again, we just had our earnings release and also on the call.
05:09We did say that if you look at our guidance range from the year, it's unchanged from what we said
05:16at the beginning of the year.
05:17As you look at the puts and takes, we think that we can hold slightly below the midpoint of what
05:25we gave as a guidance at the beginning of the year.
05:27And there's clearly a lot of levers that have to play out at this moment, though, with the visibility we
05:33have.
05:34We're maintaining the annual guidance range and I think we can come in just slightly below the midpoint.
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