Good day, ladies and gentlemen, and welcome to the Baker Hughes Company First Quarter 2022 Earnings Conference Call. As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Mr. Jud Bailey, Vice President of Investor Relations. Sir, you may begin.

Thank you. Good morning, everyone and welcome to the Baker Hughes first quarter 2022 earnings conference call. Here with me are our Chairman and CEO, Lorenzo Simonelli; and our CFO, Brian Worrell. The earnings release we issued earlier today can be found on our website at bakerhughes.com. As a reminder, during the course of this conference call, we will provide forward-looking statements. These statements are not guarantees of future performance and involve a number of risks and assumptions. Please review our SEC filings and website for a discussion of the factors that could cause actual results to differ materially. As you know, reconciliations of operating income and other GAAP to non-GAAP measures can be found in our earnings release. With that, I will turn the call over to Lorenzo.

Thank you, Jud. Good morning, everyone and thanks for joining us. Our first quarter results reflect operating in a very volatile market environment during the first few months of 2022. On the positive side, TPS orders were up over 100% year-over-year, with TPS book-to-bill of 2.2 as the LNG order cycle continues to unfold. We also experienced some challenges in parts of our business due to continued pressures from broader global supply chain constraints as well as some impact from the recent geopolitical events. As we look ahead to the rest of 2022, we see a favorable oil and gas price backdrop as well as a dynamic operating environment with perhaps the most challenging supply chain and inflationary environment we have seen in several decades. The recent and unfortunate geopolitical events are amplifying several trends, including broad-based inflation and supply pressure for key materials, commodities and labor. These events are also driving changes on the economic front, where the world is transitioning from an era of strong economic growth to an environment that is more tenuous and likely to feature diverging economic conditions regionally. Despite broader political uncertainty around the world, Baker Hughes is committed to helping deliver energy globally in a safe, clean and reliable manner, while also maintaining our commitment to net zero carbon emissions and leadership in the energy transition. To meet the world’s energy needs in a responsible manner, we believe multiple years of spending growth will be required as well as significant increases in LNG infrastructure investment. While there is some near-term risk on the demand side, we expect global oil and gas supply to remain constrained in the coming years, which should support higher commodity prices and multiple years of spending growth from our customers. Recent geopolitical events have severely constrained what was already a tight global natural gas market and have refocused the world on the importance of energy security, diversity and reliability. As the world reacts to the rapid changes in the global commodity market, governments are prioritizing natural gas and LNG as a key transition and destination fuel. We continue to see a focus on prioritizing LNG from stable, lower-cost markets and locations that can provide cleaner LNG. Given the current LNG price environment and the quickly changing dynamics, we believe that global LNG capacity will likely exceed 800 MTPA by the end of this decade to meet growing demand forecast. This compares to the current global installed base of 460 MTPA and projects under construction totaling almost 150 MTPA. In order to be operational by 2030, this additional capacity will need to reach FID by around 2025. Despite the volatile yet improving medium-term macro environment, Baker Hughes remains focused on executing our strategy and we continue to drive further optimization across the two core business areas of OFSE and IET. Earlier this year, we created Climate Technology Solutions, or CTS, and Industrial Asset Management, or IAM. The creation of these two groups is critical to accelerating the speed of commercial development across our key growth areas of new energy frontiers and industrials. We continue to make steady progress in developing our Climate Technology Solutions capabilities with recent investments and partnerships in NET Power, HIF Global and the acquisition of Mosaic Materials, which features a promising direct air capture technology. Mosaic’s materials science and technical expertise, including their unique metal organic framework technology, provides Baker Hughes with the potential to efficiently capture low concentrations of CO2 across a number of applications. NET Power is an emission-free gas-to-power technology, where Baker Hughes will develop supercritical CO2 turboexpanders and other critical pumping and compression technology. We will also bring system integration and process knowledge experience to the partnership to help accelerate the market positioning and deployment of NET Power’s emission-free and low-cost electric power. HIF Global develops projects in multiple geographies to produce e-fuels by blending green hydrogen and CO2. Baker Hughes is investing alongside EIG, Porsche, AME and Gemstone and will provide compressors, turbines, pumps, valves and other technology on future projects. We are also discussing how our recently acquired Mosaic Materials’ DAC technology could be incorporated into these future projects. Overall, we are excited about adding another carbon capture technology to our portfolio and the potential of these two partnerships to open new market opportunities in clean power and low carbon fuels for Baker Hughes. In Industrial Asset Management, we signed an important agreement with Accenture, C3.ai and Microsoft to collaborate on the build-out of the IAM solutions offering. The partnership will focus on creating and deploying Baker Hughes IAM solutions that use digital technologies to help improve the safety, efficiency and emissions profile of industrial machines, field equipment and other physical assets. In addition to advancing our commercial efforts in CTS and IAM, we also remain focused on optimizing our broader organizational structure under the core business areas of OFSE and IET. At the beginning of April, we took some steps to strengthen and better position Oilfield Services to more closely align our products, services and solutions to the lifecycle of the well and ultimately to what our customers require. OFS will move from a product line oriented structure to a solutions-focused business, centered around well construction, completions, intervention and measurements, and production solutions. In addition to the organizational changes in OFS, we were pleased to announce an agreement to acquire Altus Intervention, a leading international provider of well intervention services and downhole technology. The acquisition complements OFS’ existing portfolio by enhancing our life of wealth capabilities as operators look to improve efficiencies from mature fields. Maria Claudia and the OFS team are enhancing their operating model to become more competitive, improve the speed of decision-making and capitalize on growth opportunities in the market. These organizational changes are important steps in the OFS’ journey as customers are increasingly asking for integrated offerings and more solutions-oriented outcomes as well as a continuation of the strong productivity improvements in OFS over the past few years. As we continue to evolve Baker Hughes across the two business areas of OFSE and IET, we expect more meaningful synergy opportunities between TPS and DS. We are also focused on driving better returns in our OFE business as well as further synergies between OFS and OFE. Now, I will give you an update on each of our segments. In Oilfield Services, activity levels at the start of the year have continued to trend positively in both the international and North American markets. We also see improving visibility for stronger growth in several key areas over the rest of 2022.

Thanks, Lorenzo. I will begin with the total company results and then move into the segment details. Orders for the quarter were $6.8 billion, up 3% sequentially driven by OFE and TPS partially offset by a decrease in Digital Solutions and OFS. Year-over-year, orders were up 51%, driven by increases across all four segments. We are particularly pleased with the orders performance in the quarter, especially in TPS, following a strong orders performance in the fourth quarter. Remaining performance obligation was $25.8 billion, up 10% sequentially. Equipment RPO ended at $9.9 billion, up 20% sequentially and Services RPO ended at $15.9 billion, up 4% sequentially. Our total company book-to-bill ratio in the quarter was 1.4 and our equipment book-to-bill ratio in the quarter was 1.9. Revenue for the quarter was $4.8 billion, down 12% sequentially with declines in all four segments. Year-over-year, revenue was up 1%, driven by increases in OFS and Digital Solutions partially offset by decreases in OFE and TPS.

In Oilfield Equipment, we are encouraged to see improving demand trends across the different business areas. Although recent world events impacted first quarter results, we remain disappointed with the overall level of profitability. At a macro level, trends in the subsea and offshore markets continue to improve. In the subsea tree and flexible pipe market, we expect a solid increase in industry awards this year as a firm commodity price outlook supports a growing pipeline of deepwater opportunities in core markets. In our international wellhead business, we also see a positive order outlook across multiple regions and particularly in the Middle East. In the first quarter, we were awarded a contract in Asia to provide subsea wellheads and subsea production systems plus related services, including 12 subsea trees for a deepwater gas field.

Thanks, Brian. Operator, let’s open the call for questions.

Thank you. Our first question coming from the line of James West with Evercore ISI. Your line is open.

Hey, good morning, Lorenzo, Brian.

Hi, James.

So, Lorenzo, you had some great detail on the LNG outlook. But I was wondering if we could get a little more color from your conversations specifically with customers as things have clearly changed pretty dramatically in the last 8 or 9 weeks as LNGs come into focus here. And if you could maybe provide us what they are saying, what their urgency level is, kind of just a little more detail on how those conversations are going and how accelerated this buildout cycle could be.

Yes. Sure, James. And I think it’s clear the unfolding situation in Europe has definitely accelerated the pace of discussions on the next wave of LNG projects aiming to take FID. We’ve already started to see market momentum pick up in 2021, as countries set net-zero targets and also started to realize the role of natural gas and what it would play in the energy transition. Now I’d say we are arguably in the early stages in what could be a multi-year reorganizing of the global energy system. And with that, it will take time for the LNG landscape to evolve. And based on the discussions with customers, we see a significant step-up in a number of customers looking to take earlier FIDs with also increased long-term supply agreements. We now expect 100 to 150 MTPA to take FID over the next 2 years, with the potential of more FIDs in ‘24 and ‘25.

Sure. Thanks for that, Lorenzo. And then maybe just a quick follow-up for me, you made this investment in April, a few weeks ago or a week ago with HIF Global to expand, I think, e-fuels. Could you maybe comment on what exactly is going on there, what that market looks like? How you see that playing out?

Yes, sure, James. HIF is a great opportunity, and we’re pleased to be involved with this customer, and it’s another example of how collaboration can really help to drive the energy transition. HIF Global develops projects to produce e-fuels by blending green hydrogen and CO2. And we’ve invested alongside AME, EIG, Porsche and Gemstone, great partners to really help HIF continue to develop carbon neutral e-fuel projects in the United States, Chile and Australia. With a small minority investment in this equity round, we will be providing compressors, turbines, pumps, valves and other technology on future projects.

Yes. Good morning, everyone.

Hi, Chase.

Hi, Chase.

Hi, Brian. Hi, Lorenzo. I guess kind of a follow-up question on James, a question around LNG. And obviously, you’ve taken up your guidance for LNG – or sorry, for TPS orders this year based on strong LNG. So, you’ve been guiding flat. Now you expect kind of strong order growth momentum. So, I don’t know if you want to kind of quantify what strong means.

Yes, Chase. On TPS, again, we’re seeing a continued order momentum that we saw start at the end of ‘21, and it’s really accelerated in ‘22, primarily driven by LNG, also the new energy opportunities, even though they are smaller in nature. But when you look at the LNG projects that are moving forward as I mentioned before, and you think about the likely timing, it could translate in an order number for TPS of $8 billion to $9 billion in 2022.

Okay, alright. That’s helpful there. Nice to hear. Strong orders are going to continue into 2023 for TPS. The follow-up is really obviously, the Russia-Ukraine conflict is causing Europe and other countries to focus on energy security. Obviously, this is positive on the LNG front. But what does that ultimately mean for the energy transition? Do you think that it actually slows the pace of adoption? Does it speed it up? Like what does it mean for energy transition?

Yes, Chase, it’s a question that many are posing then. I think the focus right now in the near-term has switched to energy security, reliability and diversity. But we don’t believe that sustainability goes away. And in fact, if you look at some of the policies even introduced in Germany, the 2035 Energy Plan still continues focus on sustainability. We think the current environment will actually accelerate clean energy initiatives, particularly for fuels like hydrogen, which the EU is making a large part of its long-term energy plan.

Yes, thanks. I was hoping maybe we could talk a little bit more about Russia.

Yes, Connor, to hit the first part, this does include the impact of what was going on with the ruble. And as you know, it’s been down and up again and is relatively stable at this point in time. And you hit it, it represented roughly about 4% of revenues in the first quarter. And look, I’d say in terms of how we’re thinking about it for the full year, you got to take a step back and realize that sanctions from the U.S., UK., and the EU continue to evolve and are making ongoing operations increasingly complex and a bit more difficult. And kind of to give you some perspective on the quarter, we did see some decremental impact on EBITDA, about the same level on EBITDA that as Russia represented in terms of revenue of the total company.

Yes, thanks for all that color. The last portion you were talking about there was my follow-up. So basically, at this point, have you seen any of your major international customers alter plans or accelerate plans or indicate that they are planning to accelerate? Certainly, it seems like there is going to be some loss of Russian oil volumes to the market. I am curious how some of these bigger companies are going to respond to that?

Yes. Yes, we are seeing customers talk about increasing their spend plan. I would say particularly, we have seen that in the Middle East and have started to see awards increase.

Yes. Thanks. So, just building upon Connor’s last question there, it sounds like the visibility into ‘23 is improving. What’s the potential for the international OFS market to actually see an acceleration in spending in ‘23, given the fact that budgets for this year were set before the surge in oil prices?

Yes, Scott, just on OFS international outlook. Based on the conversations with our customers, we expect a broad-based recovery internationally with all major geographies and overall international growth in the low to mid-teens. We believe the Middle East could be one of the strongest markets in 2022 and is likely in the early stages of a growth cycle. And we also expect to see another strong year of growth in Latin America, led by Brazil and Mexico. And then as we go forward, we would expect North Sea and Asia Pacific to see solid growth in 2022. Not as strong as Middle East or Latin America, but solid growth. And lastly, West Africa is also seeing some incremental activity and strong growth as we go forward.

Thanks. Good morning, gentlemen.

Good morning.

Good morning.

Can you – do you mind going back to your prepared comments on your oilfield services side and some of the changes you have made there? Can you talk about sort of the path to 20% EBITDA margins by the end of the year and maybe with some color around the impact of some of these changes you have made?

Yes. Look, so I would say overall, we still feel confident, Stephen, in hitting our margin target rates and getting OFS to a 20% EBITDA margin rate on a consistent basis. And I would say from here, there are a couple of things that should drive margin improvement.

And Stephen, just to add, the new organization that we announced is going to improve the speed of decision-making and also be able to capitalize on the growth opportunities in the market.

Hey. Good morning, Lorenzo. So, a question on the global push to build out LNG capacity, I had heard anecdotally it was a minimum of 4 years to bring a new train on, start to finish. But you are talking about Plaquemines closer to 29 months, you talk some modular design. Is this the new standard that we should be thinking about these projects?

Yes, Dave. And I think you have to go back to the tenure we have had in the LNG cycle. And we have always said that there are going to be small-scale, mid-scale, large-scale, and we are going to be participating in all of those and also looking at modular as well as stick build. And depending on the customers’ needs, we are going to be providing them. Clearly, the modular is faster to market. It is a plug-and-play model.

Yes. Thank you. Good morning. How are you?

Good. Hi Roger.

Just a couple of quick questions. The first one is you made the comment about supply chain easing up as the year goes on, and understand chemical is a little different than some of the others. But as we think of some of the pieces that will go into these LNG orders, some of the issues going over in China, is there any risk of that affecting?

Hey Roger, I will go ahead. You cut off there a little bit. But on supply chain, it tends to be challenging. And obviously, with everything going on in the global geopolitical space, it’s been a little more challenging. But look, I would say from how it impacts us and how we are dealing with it, we are managing the price increases in various metals like copper and steel and nickel. There is no supply issue, it’s just managing through those pricing. And you can imagine that, that’s going into our quotes.

Okay, great. Thanks.

Yes. Thank you very much, and thank you to everyone for joining our earnings call today. Just before we end the call, I wanted to leave you with some closing thoughts. Despite some of the challenges this quarter, we are optimistic on the outlook across both of our core business areas and excited about the new energy investments we are making for Baker Hughes.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating in today’s conference. You may all disconnect.