Energy technology company Baker Hughes has announced that it will take a non-cash goodwill impairment of US$15bn in Q1 2020 and it will cut its 2020 capital spending by 20 per cent, due to low commodity prices and COVID-19 pandemic
The charge will not impact its cash flow, the company said. Additionally, the company has approved a plan that will result in restructuring, impairment, and other charges of approximately US$1.8bn, of which approximately US$1.5bn will be recorded in Q1 2020
Future cash expenditures associated with these charges are estimated to be approximately US$0.5bn with an expected payback within one year. “These restructuring charges are designed to right-size our operations for anticipated activity levels and market conditions,” the company stated.
The company’s market capitalisation declined significantly during Q1 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.
In addition, the uncertainty related to oil demand continues to have a significant impact on the investment and operating plans of our primary customers. 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 31 March.
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.
