Efficiencies add up to oil profits
Orange, Calif. — First thing every Monday morning, a secretary at Baker International Corporation here telephones Houston, listens to a recorded announcement, and carefully takes down the numbers recited by the taped message.
It's a ritual repreated by just about everyone involved in the nation's oil and gas industry because the figures represent the number of oil and gas drilling rigs in operation that week. That so-called ''rig count'' is seen as a vital indicator of the industry's health. And, in the view of many executives, things couldn't be much worse.
After hitting an all-time high of some 4,500 in December 1981, the rig count has since nose-dived to about 2,650, back to where things were three years ago. All the same, E. H. Clark Jr., chairman, president, and chief executive officer of Baker International, doesn't agree at all with gloomy forecasts based on rigs working.
In fact, business for his company, which is almost entirely involved with supporting oil and gas exploration and production, has never been better. For the nine months ended June 30 of the company's current fiscal year revenues hit nearly $2 billion, up 30 percent from the $1.5 billion the year before. Nine-month earnings were up almost 36 percent to $210 million from $155 million.
For the 1981 fiscal year ended Sept. 30, Baker International reported total revenues of $2.1 billion, up 38 percent, while profits zoomed 62 percent to $225 million. For the 1982 fiscal year the company expects to set new records with revenues up in the 20 to 25 percent range and profits increasing by perhaps 15 percent.
But how can this be if far fewer wells are being drilled? It's Baker's business to supply oil and gas companies with such products as pipes, drill bits , scientific equipment to monitor and record drilling operations, drilling fluids, and minerals to give drilling mud its high density
The secret, according to Mr. Clark, isn't the sheer number of wells drilled but their efficiency and quality. All that drilling in 1980 and '81 included speculative activities directly related to tax-shelter syndications and so-called wildcatting by newcomers to the industry. ''We were throwing too many men and machines at the problem and not enough hard-nosed management and/or experience,'' says Clark.
Now the people at Baker say that efficiency for those rigs that are working is increasing, and that translates directly into more sales for Baker's family of 27 different subsidiary companies. Explains Ronald G. Turner, a petroleum engineer now director of investor relations, ''You can drill a shallow well of about 2,500 feet for about $50,000 and use two secondhand drill bits. But if you go down deep, to maybe 17,500 feet, you'll spend maybe $8 million.'' In the process, the driller will require a dozen bits and each one will cost 10 times as much as a ''post hole'' drill bit. ''You're in two different worlds when you go deep,'' said Mr. Turner. ''It costs more, but you have more when you find it.''
Those serious drillers who are concerned with efficiency are prime Baker customers. ''This company focuses on where the money is spent, not where statistics are made,'' said Turner. He estimates that about 20 percent of the wells drilled these days take perhaps 80 percent of the expenditures. He quips, ''We're in the jewelry business,'' meaning that Baker doesn't operate rigs, platforms, or other major capital equipment but is only involved in supplying expensive services and equipment to those who do.
For all of its impressive revenue and profit results, Baker International Corporation has been taking a beating on the New York Stock Exchange. Its stock about two years ago was selling as high as $53. In January of this year it was off to $38 and has lost half that by midsummer, dipping at times to $19.
Still, even as business continues to grow there's less and less opportunity or need for new capital spending by Baker. Paradoxically, its cash flow situation improves literally because the equity market is so depressed. ''This is an immensely profitable company,'' said Turner. A continuation of present trends could turn it into a ''money machine,'' he says.
Available cash will be used to retire more of the company's outstanding debts , Turner says. There are no plans, however, for major acquisitions or diversification. Late last year, acquisition of Coppinger Machinery Service Inc. was completed and Envirotech Inc. was acquired. Its mining businesses were subsequently integrated into the Baker Mining Equipment Corporation.