The following discussion and analysis should be read together with our condensed consolidated financial statements and notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and our consolidated financial statements and notes to those statements included in our 2022 Annual Report on Form 10-K in order to understand factors, such as charges and credits, financing transactions and changes in tax regulations, which may impact comparability from period to period. We provide a broad range of manufactured products and services to customers in the energy, industrial and military sectors through our Offshore/Manufactured Products, Well Site Services and Downhole Technologies segments. Demand for our products and services is cyclical and substantially dependent upon activity levels in the oil and gas industry, particularly our customers' willingness to invest capital in the exploration for and development of crude oil and natural gas reserves. Our customers' capital spending programs are generally based on their cash flows and their outlook for near-term and long-term commodity prices, making demand for our products and services sensitive to expectations regarding future crude oil and natural gas prices, as well as economic growth, commodity demand and estimates of resource production and regulatory pressures related to environmental, social and governance ("ESG") considerations. 18 --------------------------------------------------------------------------------
Recent Developments
Brent and West Texas Intermediate ("WTI") crude oil and natural gas pricing trends were as follows: Average Price(1) for quarter ended Average Price(1) for year ended Year March 31 June 30 September 30 December 31 December 31
Brent Crude (per bbl) 2023$ 81.01 2022 100.87$ 113.84 $ 100.71 $ 88.77 $ 100.99 WTI Crude (per bbl) 2023$ 75.91 2022 95.18$ 108.83 $
93.06
2023$ 2.64 2022 4.67$ 7.50 $ 8.03 $ 5.55 $ 6.45 ________________
(1)Source: U.S.
OnApril 21, 2023 , Brent crude oil, WTI crude oil and natural gas spot prices closed at$83.36 per barrel,$77.86 per barrel and$2.20 per MMBtu, respectively. Additionally, as presented in more detail below, theU.S. drilling rig count reported onApril 21, 2023 was 753 rigs - comparable to the first quarter 2023 average. InFebruary 2023 , we repaid the$17.3 million principal amount, plus accrued interest, of outstanding 2023 Notes (as defined below). Additionally, our Board of Directors authorized a$25.0 million stock repurchase plan, which extends throughFebruary 2025 . No repurchases have been made under the plan as ofMarch 31, 2023 .
Overview
Current and expected future pricing for WTI crude oil and inflationary costs increases, along with expectations regarding the regulatory environment in the regions in which we operate, are factors that will continue to influence our customers' willingness to invest capital in their businesses. Expectations for the longer-term price for Brent crude oil will continue to influence our customers' spending related to global offshore drilling and development and, thus, a significant portion of the activity of our Offshore/Manufactured Products segment. Crude oil prices and levels of demand for crude oil are likely to remain highly volatile due to numerous factors, including: global uncertainties related to disruptions in the banking sector, geopolitical conflicts (such as the direction and outcome ofRussia's invasion ofUkraine ) and international tensions; sanctions; the perceived risk of a global economic recession; domestic or international crude oil production; changes in governmental rules and regulations; the willingness of operators to invest capital in the exploration for and development of resources; use of alternative fuels; improved vehicle fuel efficiency; a more sustained movement to electric vehicles; and the potential for ongoing supply/demand imbalances. Capital investment by our customers temporarily declined due to these factors and the desire to generate sustainable cash flows. Customer spending in the natural gas shale plays has been limited due to technological advancements that have led to significant amounts of natural gas being produced from prolific basins in theNortheastern United States and from associated gas produced from the drilling and completion of unconventional oil wells inthe United States .U.S. drilling, completion and production activity and, in turn, our financial results, are sensitive to near-term fluctuations in commodity prices, particularly WTI crude oil prices, given the short-term, call-out nature of ourU.S. operations. Our Offshore/Manufactured Products segment provides technology-driven, highly-engineered products and services for offshore oil and natural gas production systems and facilities globally, as well as certain products and services to the offshore and land-based drilling and completion markets. This segment also produces a variety of products for use in industrial, military and other applications outside the traditional energy industry. Additionally, we are investing in research and product development related to, and have been awarded select contracts and are bidding on additional projects that facilitate, the development of alternative energy sources, including offshore wind and deepsea mineral gathering opportunities. This segment is particularly influenced by global spending on deepwater drilling and production, which is primarily driven by our customers' longer-term commodity demand forecasts and outlook for crude oil and natural gas prices. Approximately 40% of Offshore/Manufactured Products segment sales in the first three months of 2023 were driven by our customers' capital spending for products used in exploratory and developmental drilling, greenfield offshore production infrastructure, and subsea pipeline tie- 19 -------------------------------------------------------------------------------- in and repair system applications, along with upgraded equipment for existing offshore drilling rigs and other vessels (referred to herein as "project-driven products"). Deepwater oil and gas development projects typically involve significant capital investments and multi-year development plans. Such projects are generally undertaken by larger exploration, field development and production companies (primarily international oil companies and state-run national oil companies) using relatively conservative crude oil and natural gas pricing assumptions. Given the long lead times associated with field development, we believe some of these deepwater projects, once approved for development, are generally less susceptible to change based on short-term fluctuations in the price of crude oil and natural gas. Backlog reported by our Offshore/Manufactured Products segment increased to$326 million as ofMarch 31, 2023 from$308 million as ofDecember 31, 2022 and$265 million as ofMarch 31, 2022 . Bookings totaled$118 million in the first quarter of 2023, yielding a book-to-bill ratio of 1.2x. The following table sets forth backlog as of the dates indicated (in millions). Backlog as of Year March 31 June 30 September 30 December 31 2023$ 326 2022 265$ 241 $ 258$ 308 2021 226 214 249 260 Our Well Site Services segment provides completion services and, to a much lesser extent, land drilling services, inthe United States (including theGulf of Mexico ) and the rest of the world.U.S. drilling and completion activity and, in turn, our Well Site Services results, are sensitive to near-term fluctuations in commodity prices, particularly WTI crude oil prices, given the short-term, call-out nature of its operations. We primarily supply equipment and service personnel utilized in the completion of and initial production from new and recompleted wells in ourU.S. operations, which are dependent primarily upon the level and complexity of drilling, completion and workover activity in our areas of operations. Well intensity and complexity have increased with the continuing transition to multi-well pads, the drilling of longer lateral wells and increased downhole pressures, along with the increased number of frac stages completed in horizontal wells. Our Downhole Technologies segment provides oil and gas perforation systems, downhole tools and services in support of completion, intervention, wireline and well abandonment operations. This segment designs, manufactures and markets its consumable engineered products to oilfield service as well as exploration and production companies. Product and service offerings for this segment include innovations in perforation technology through patented and proprietary systems combined with advanced modeling and analysis tools. This expertise has led to the optimization of perforation hole size, depth, and quality of tunnels, which are key factors for maximizing the effectiveness of hydraulic fracturing. Additional offerings include proprietary frac plug and toe valve products, which are focused on zonal isolation for hydraulic fracturing of horizontal wells, and a broad range of consumable products, such as setting tools and bridge plugs, that are used in completion, intervention and decommissioning applications. Demand drivers for the Downhole Technologies segment include continued trends toward longer lateral lengths, increased frac stages and more perforation clusters to target increased unconventional well productivity, which requires ongoing technological and product developments. Demand for our completion-related products and services within each of our segments is highly correlated to changes in the total number of wells drilled inthe United States , total footage drilled, the number of drilled wells that are completed and changes in the drilling rig count. The following table sets forth a summary of theU.S. and international drilling rig count, as measured by Baker Hughes Company, as of and for the periods indicated. Average for the Three Months Ended March 31, As of April 21, 2023 2023 2022 United States Rig Count: Land - Oil 571 579 493 Land - Natural gas and other 161 155 123 Offshore 21 19 17 753 753 633 International Rig Count: Land 897 828 Offshore 226 193 1,123 1,021 1,876 1,654 20
-------------------------------------------------------------------------------- TheU.S. energy industry is primarily focused on crude oil and liquids-rich exploration and development activities inU.S. shale plays utilizing horizontal drilling and completion techniques. As ofMarch 31, 2023 , oil-directed drilling accounted for 78% of the totalU.S. rig count - with the balance largely natural gas related. As can be derived from the table above, the averageU.S. rig count for the first three months of 2023 increased by 120 rigs, or 19%, compared to the average for the first three months of 2022. We use a variety of domestically produced and imported raw materials and component products, including steel, in the manufacture of our products.The United States has imposed tariffs on a variety of imported products, including steel and aluminum. In response to theU.S. tariffs on steel and aluminum, theEuropean Union and several other countries, includingCanada andChina , have threatened and/or imposed retaliatory tariffs. In addition, in response toRussia's invasion ofUkraine , governments in theEuropean Union ,the United States , theUnited Kingdom ,Switzerland and other countries have enacted sanctions againstRussia and Russian interests. The effect of these sanctions and tariffs and the application and interpretation of existing trade agreements and customs, anti-dumping and countervailing duty regulations continue to evolve, and we continue to monitor these matters. If we encounter difficulty in procuring these raw materials and component products, or if the prices we have to pay for these products increase and we are unable to pass corresponding cost increases on to our customers, our financial position, cash flows and results of operations could be adversely affected. Furthermore, uncertainty with respect to potential costs in the drilling and completion of oil and gas wells could cause our customers to delay or cancel planned projects which, if this occurred, would adversely affect our financial position, cash flows and results of operations. Other factors that can affect our business and financial results include but are not limited to: the general global economic environment (including disruptions in the banking sector); competitive pricing pressures; public health crises; natural disasters; labor market constraints; supply chain disruptions; inflation in wages, materials, parts, equipment and other costs; climate-related and other regulatory changes; geopolitical tensions; and changes in tax laws inthe United States and international markets. We continue to monitor the global economy, the prices of and demand for crude oil and natural gas, and the resultant impact on the capital spending plans and operations of our customers in order to plan and manage our business. Human Capital For more information on our health and safety, diversity and other workforce policies, please see "Part I, Item 1. Business - Human Capital" in our Annual Report on Form 10-K for the year endedDecember 31, 2022 . 21 --------------------------------------------------------------------------------
Selected Financial Data
This selected financial data should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and related notes included in "Part I, Item 1. Financial Statements" of this Quarterly Report on Form 10-Q and in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and our Consolidated Financial Statements and related notes included in "Part II, Item 8. Financial Statements and Supplementary Data" of our Annual Report on Form 10-K for the year endedDecember 31, 2022 in order to understand factors which may impact comparability of the selected financial data.
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