Baker Hughes warns on Canada, hits oil svc co's

Weak prices for gas in Western Canada have weighed on the oil service sector over the past year as producers halted production and scaled back exploration activities.

But the Baker Hughes announcement, which sent its shares down more than 5 percent, surprised Pierre Connor, analyst with Capital One SouthCoast in New Orleans, who expected the Houston-based company's oil rig business to protect it from the weaker gas environment.

"It's obviously worse than expected," he added.

The number of rigs searching for oil and gas in Canada was 286, according to Baker Hughes latest weekly data, up from the previous week but about half the 560 mark a year ago.

The declines in Baker Hughes led the weakness in the Philadelphia Oil Service Index, which slipped 0.7 percent in early trading.

BJ Services, Weatherford International, Grant Prideco, Smith International and Tenaris SA were down between 0.8 percent to 4 percent after the Baker Hughes news, although the two sector leaders, Schlumberger Ltd. and Halliburton Co. held moderate gains.

Baker Hughes said the weakness was felt particularly in the drilling and evaluation segment in Canada, although its international operations remained on target.

"Things almost everywhere else in the world are very solid," said Jeffries & Co. analyst Stephen Gengaro. "We're not really overly worried about this ... I think the Baker announcement gets it washed out in the stocks pretty quickly."

The oilfield services company expects to report second-quarter earnings of $1.07 to $1.09 a share, compared with the $1.17 a share it reported in the first quarter.