Covid-19: Baker Hughes expects $15bn impairment and cuts capex

Baker Hughes expects to book a non-cash goodwill impairment charge of $15bn in the first quarter in response to the crash in oil and gas prices, as well as the Covid-19 outbreak.

The company will also cut its 2020 capital expenditure (capex) budget by more than 20% from last year.

It has approved a plan that involves restructuring, impairment, and other charges of nearly $1.8bn. Around $1.5bn of this will be recorded in the first quarter of this year.

According to the company, future cash expenditures associated with these charges are estimated to be $500m and are expected to be paid back within one year.

The company said that its market capitalisation declined significantly during the first quarter, which has been triggered by geopolitical conditions including the collapse of oil prices and the decrease in demand caused by the coronavirus pandemic.

The oil demand uncertainty continues to have a major impact on the investment and operating plans of Baker Hughes’ primary customers.

Baker Hughes said in a press statement: “Based on these events, Baker Hughes concluded that a triggering event occurred which required the Company to perform an interim quantitative impairment test as of March 31, 2020.

“Based upon the results of the impairment test, the company concluded that the carrying value of the Oilfield Services and Oilfield Equipment reporting units exceeded their estimated fair value, resulting in a goodwill impairment charge. This impairment charge will not impact the company’s cash flow.”

Earlier this month, Baker Hughes successfully completed a string test of a mixed refrigerant compression system of the Calcasieu Pass liquefied natural gas (LNG) export project in Louisiana, US.

In November last year, Baker Hughes, C3.ai, and Microsoft formed a strategic partnership to bring enterprise artificial intelligence (AI) solutions to the energy industry on the Microsoft Azure Cloud computing platform.