SLB Schlumberger Ltd

Baker Hughes Incorporated (BHI) has won a contract from the Russian oil company, LUKOIL, to offer full drilling and completion services for 23 wells at the West Qurna field in Iraq.

Under the two-year contract, Baker is entitled to provide supply drilling services, formation evaluation, casing and tubing running services, completion tools and services, wellbore intervention services, wireline logging as well as perforation operations. Additionally, the company expects to contract all third-party services, equipment, personnel, tools and materials required for the project, including five drilling and three workover rigs.

At the West Qurna field, located in southeast Iraq and 31 miles west of Basra, the company expects to drill a few wells directionally in order to touch the Mishrif formation. The maneuver requires implementation of the cluster/pad drilling technique as the wells are closely spaced.

Houston, Texas-based oilfield service company, Baker Hughes, is well suited to accomplish the West Qurna project in Iraq. Last year, the company untied a 1.3 million square-feet operations base in Basra. Apart from the current contract, Baker runs drilling and workover rigs in the Zubair field for an international oil company.

Baker also remains engaged with the South Oil Company for the development of Iraqi wireline capabilities and furnishing electrical submersible pumping systems and services to three major international operators.

Among the diversified oilfield service players, Baker Hughes, is one of the best positioned with significant improvement in activity levels in both North America and overseas. We believe Baker Hughes is well positioned to gain from two positive influences on the global oil service business. The first is a structural shift in North America mainly from the integration of BJ Services business and the other is an international turnaround that is in its early stage.

Management stated that international margins could exit 2011 at around the targeted 15% given its second-quarter 2011 margin improvement. Baker Hughes’ international operations reported substantial year-over-year margin improvement in the quarter, owing to its international restructuring and divestiture of unprofitable assets.

The company also registered an impressive sequential margin improvement primarily in the Europe, Africa, Russia/Caspian segment. We expect activities to improve further in the second half of the year, particularly in the Middle East, including Saudi Arabia and Iraq.

We maintain our long-term Neutral recommendation for Baker, which retains a Zacks #3 Rank (short-term Hold rating). The company competes with Halliburton Company (HAL) and Schlumberger Limited (SLB).

 
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