Baker Hughes Takes $15 Billion Goodwill Impairment Charge

Baker Hughes, the oil-services major, said it would take a first-quarter non-cash goodwill impairment charge of $15 billion. And it plans a $1.8 billion restructuring and impairment charge, of which $1.5 billion will be posted for the first quarter.
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Oilfield services major Baker Hughes  (BKR)  said Monday that it will take two charges in response to the slump in oil and gas prices and to the covid-19 pandemic.

The Houston company expects to report a first-quarter non-cash goodwill impairment charge of $15 billion. And it plans $1.8 billion of restructuring and impairment charges, of which $1.5 billion will be posted for the first quarter.

The company said it conducted an impairment test that concluded that the carrying value of the oilfield services and oilfield equipment units exceeded their estimated fair value, resulting in the $15 billion impairment charge.  

Baker Hughes also expects future cash expenditures of about $500 million related to the $1.8 billion of charges, though it expects payback within a year. 

"The company’s market capitalization declined significantly during the first quarter, driven by current macroeconomic and geopolitical conditions including the collapse of oil prices driven by both surplus production and supply as well as the decrease in demand caused by the covid-19 pandemic," Baker Hughes said in its 8K filing Monday. 

The $15 billion impairment charge will not affect the company's cash flow and is still subject to finalization, Baker Hughes said. 

Capital expenditures have been uncertain for the company as its oil-drilling clients deal with the volatility of oil demand in the current market climate.

Baker Hughes, as a result of that uncertainty, expects to reduce 2020 net capital expenditures by more than 20% from 2019. 

Last week, the company reported that the number of active U.S. rigs drilling for oil dropped by 58 to 504. However that number could get a boost as OPEC over the weekend reached a deal to slash output and stabilize falling prices.  

Baker Hughes shares at last check were 5.6% higher at $13.58.