Baker Hughes at Bank of America Conference: Strategic Growth in Energy

On Tuesday, 18 March 2025, Baker Hughes (NASDAQ: BKR) presented at the Bank of America Global Industrials Conference, offering a comprehensive strategic overview. The company highlighted its transformation into a stable energy and industrial technology leader, focusing on natural gas and LNG as key growth drivers. Despite challenges like tariff concerns, Baker Hughes remains optimistic about its future, emphasizing margin expansion and cash flow management.

Key Takeaways

• Baker Hughes is transitioning towards more stable, less cyclical production activities.
• The company targets significant margin improvements, aiming for 20% EBITDA in key segments by 2026.
• Natural gas is positioned as a "destination fuel" with a strong global demand outlook.
• Expansion into data center power solutions and climate technology solutions is underway.
• Commitment to returning 60% to 80% of free cash flow to shareholders through dividends and buybacks.

Financial Results

• Target Margins:

- Oilfield Services and Equipment: 20% EBITDA by 2025

- Industrial Energy Technology: 20% EBITDA by 2026

• Margin Drivers:

- Better backlog conversion and pricing

- Volume and productivity improvements

- Easing supply chain challenges

- Increased R&D leverage

• Climate Technology Solutions:

- 2023 orders: $1.3 billion

- 2030 target: $6 billion to $7 billion

• Free Cash Flow Conversion:

- Past year: High 40%

- Guidance: 45% to 50%

- Target: Above 50%

Operational Updates

• LNG Capacity:

- Current production: ~500 million tons per annum

- Under construction: Additional 200 million tons

- Expected FID (Final Investment Decision) by 2026: Additional 100 million tons

• IET Order Book:

- 2023 orders exceeded $13 billion

• OFSE Focus:

- International and mature asset solutions

- Reported a 40% production increase in a field using their technology

• Productivity Enhancements:

- Florence facility produced 40% more equipment within the same space

Future Outlook

• Natural Gas Market:

- Valued at over $140 billion

- Long-term pipeline of LNG projects extends beyond 2030

• Data Centers:

- Off-grid power solutions using NovaLT turbines

- Potential for 300 megawatts of clean power solutions by 2028-2029

• Climate Technology Solutions:

- Addressable market: $60 billion to $70 billion

- 2030 order target: $6 billion to $7 billion

• Cash Flow Goals:

- Sustain 50% free cash flow conversion on a full period cycle

Q&A Highlights

• M&A Strategy:

- Focus on portfolio upgrades and technology investments

Readers are encouraged to refer to the full transcript for a detailed understanding of Baker Hughes’ strategic direction and financial outlook.

Full transcript - Bank of America Global Industrials Conference:

Saurabh, Analyst, Bank of America: Bank of America based in New York. Really glad to have with me Baker Hughes, Chairman, President and CEO Lorenzo Simonelli. Lorenzo, you’ve been the CEO since 2017, basically since the company came together, legacy Baker Hughes, legacy G Oil and Gas. So really glad to have Lorenzo with us. Baker Hughes is a household name in Oil and Gas.

Everybody knows Baker Hughes, but I’m sure there are people in attendance who do not know Baker Hughes that well. So we’ll start with some foundational questions. We’ll dive deeper into the details. But Lorenzo, let’s just kick start it. Okay.

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: Good to be here, Saurabh. Yes.

Saurabh, Analyst, Bank of America: Thank you. And Lorenzo, I did want to start with the business and the basics, but I do see Amit sitting in the front row. So this is topical. I’ve been on the road the past week or ten days. A lot of questions come up on this topic on the CFO transition topic, right.

So maybe let’s kick start there. What’s the thought process? What’s the board thinking? Why now?

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: Definitely. And first of all, you can see that Ahmed is here and I want to give my appreciation and also gratitude to Nancy Bezey, who did a splendid job during the last few years. And as we look at the plan from a Baker Hughes perspective, back in 2022, we laid out really three stages of the journey. And Horizon one was going to be associated with some of the financial controls, financial systems, simplification, also the processes from an external perspective giving guidance. And as we continue into Horizon two and Horizon three, it’s a lot more about the profitable growth and the synergies between the two segments, the way in which we continue with new energy and also some of the R and D that we’ve been investing in over the past few years.

Ahmed has a history with Baker Hughes as well as with the Industrial Energy Technology business. He’s been working with Ganesh who leads our Industrial Energy Technology business for the last few years and really helped turn that business into more profitable growth and leading the way towards the 20% EBITDA for 2026. So as we thought about the progression of Baker Hughes and also the Capital Markets Day that we’re preparing for September 4, where we’ll lay out the journey for the next three years and also Horizon three, this is a good timely moment to make a transition and to have Amit come in and really start to own that Horizon two and Horizon three. Right, right, right.

Saurabh, Analyst, Bank of America: Now that makes sense. Even from a timing standpoint, it makes sense. And then maybe just a little bit more color, right? Amit has been a bad Baker Hughes for a long time, right? So maybe just talk to the skills that he brings to the table and obviously the experience, the domain knowledge that he has accumulated over the years, right?

How does that contribute?

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: I’d say he definitely has the financial acumen and from his background he’s going to maintain what Nancy has already put into place and continue the simplification of finance. Also the aspect of controls and bringing down our tax rate, which has all been initiated. Also what he provides is the business affinity and having spent several years at the headquarters with Financial Planning and Analysis, having spent time in Oilfield Services, understanding their business during the integration and most recently with the Industrial Energy Technology being the CFO there, brings an appreciation for how LNG continues to grow, how our gas infrastructure and our new energy and also how we bring the oilfield services, products and services into solutions for our customers. So I think again from a background, a depth of the company and also the connections within the company, very well established personality.

Saurabh, Analyst, Bank of America: Right, right, right. No, I’m sure we’ll get to talk with and work with them a lot more going forward, all of us on the buy side, sell side regardless, right, all the investment community would get to know him also. Ahmed, good luck for the job. And maybe let’s pivot a little bit, Lorenzo. Like I said, you’re a household name in Oil and Gas world, right, but a lot of people were not close to the story.

How would you describe Baker Hughes to those guys who are new to the story? Why are you different? How are you different from your peers? And then we all talk about IT, which is the differentiated part of your business, right? Why is it more industrial versus oilfield services?

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: So when you look at the household name of Baker Hughes, you will associate it with a rich history of over one hundred years being in the Oilfield Services. I’d say first of all, what differentiates us is even in the Oilfield Services and Equipment, we’re much more on the production side. We’ve actually exited a number of the commodity areas, the variation of as you look at seismic or you look at exploration. So we’re in the less cyclical and more stable aspects of production, chemicals, ESPs. And when you look at Baker Hughes today following the merger in 2017 of GEO Oil and Gas, we really are an energy and industrial technology company.

And so we provide the services that are needed from an extraction and production perspective, but we complement it with the gas turbines, the compression, the valves, the pumps that are needed to actually move the molecules as well. And so when you look at it holistically, we have a better appreciation of the value chain when you think of energy and industrial and we all know how important the molecules are to energy that’s required and increasing in demand over the next decades. And we’re very strong on natural gas and also have a solid position in liquefied natural gas. So when you look at Baker Hughes today, it’s very different than what we had historically and it’s much more of an energy and industrial technology company.

Saurabh, Analyst, Bank of America: Right, right, right. I want to dive deeper into that Lorenda, right. And especially you mentioned natural gas, obviously that’s a big piece of what you’re doing in IIT. We provide all the mission critical equipment, be it compression, liquefaction, right. But ultimately it’s tied to natural gas.

Right, so maybe spend a few minutes talking about the outlook for natural gas.

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: Very positive outlook. I think we’ve said for some time that natural gas is not a transition fuel, it’s a destination fuel. And the reason why we’ve been saying that is because it is a reliable, affordable, secure and sustainable molecule that we know can actually provide a lot of benefits as we go forward with the increasing demand for energy. And when we think about natural gas and the properties it has, this is the time of natural gas. When you think about the energy mix and you look historically, it takes time to move one to the other.

And the energy transition is really about an energy expansion. And while you see the demand increasing, our addressable market associated with natural gas is over $140,000,000,000 and that is going to be a significant growth leverage for Baker Hughes as we go forward and we are more gas oriented. And as we go forward, you’ll see that within the LNG up cycle, you’ll see that within the gas infrastructure, you see it from a onshore offshore production, you’re seeing it now from a data center perspective and really what you have is the right liability of natural gas coming to the prominence and that’s going to be a key element of the energy mix of all nations going forward. Right, right, right. Now so definitely there

Saurabh, Analyst, Bank of America: are lots of layers, lots of different end markets you serve. LNG is one that people know well and you obviously dominate that market. Let’s start with LNG, right? Obviously in The U. S, the current administration is supportive of LNG.

Just talk about what that means from your perspective, FID, orders and then maybe a little bit of time on the Non U. S, the international side of the LNG pipeline? If you go back to what we said at the beginning, we clearly saw that LNG was going to

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: play a key role during the course of this decade. In 2019, we said that by the end of the decade, we needed 800,000,000 tons per annum of installed capacity and we are well on track with that. As you look at roughly 500,000,000 tons in production today, you’ve got another 200,000,000 tons that’s in actually construction and another 100,000,000 tonnes is going to be FID between 2024 and the end of twenty twenty six to be there for 02/1930. And in fact last year there was about 17,000,000 tonnes that was FID given the pause in The United States that took place that was less than what was expected. However, we’re now seeing those projects come back and we fully expect the rest to be FID during the course of the next years.

Also what we’re seeing is a continued pipeline of projects that go beyond 02/1930. And when you look at the offtake agreements that are being structured last year, a very high offtake agreement, These are twenty year offtakes. They are cementing the role that natural gas and in particular LNG will play in the future beyond 02/1930. So we’ve got a pipeline of projects that say this cycle isn’t over in 02/1930 and we’ll be having more FIDs as we go into 2028, ’20 ’20 ’9 that will take the installed capacity beyond the 800,000,000 tons as we go from 02/1930 to 02/1935. And you can see it in the policy of countries as well.

China continuing to increase its mix of energy associated with natural gas. Other countries in Southeast Asia already saying they’re going to utilize more LNG. And so feel very confident in that and U. S. Is a big contributor and you can see that this administration has already lifted the pause on day one, also is talking about energy dominance and one of the aspects there is by utilizing the natural gas resources The United States has as a way to export energy through liquefied natural gas and help with the trade imbalances that take place with other countries.

Outside of The U. S, you also have a lot of strength in LNG. If you look at the ongoing expansion in Qatar, you look at the prospects that are taking place in Africa with Mozambique and also future potential for Tanzania. You look at South America, you’ve got the opportunity of Argentina. And again, as you look at Southeast Asia, some LNG and floating LNGs that are taking place.

So we see that globally where you’re resource rich, you’re going to have a lot of LNG opportunities. Right, right, right.

Saurabh, Analyst, Bank of America: Now clearly you’re by and far the leader in LNG, right, you pick a liquefaction plant in the world. More likely than not it’s going to be make a huge equipment in there, right. How did you get to that position and how have you been able to stay in that position for so long?

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: We like critical equipment and mission critical equipment. And so when we pick the areas where we play, it’s where we can have a long term view of taking the difficult stuff and getting specified and actually becoming in some way a partner with our customers and making them successful on the production. So when you look at LNG, it’s an aspect of the reliability, the continued focus on investment. We have a portfolio of LNG capabilities that goes from stick build to modular, that goes to floating, goes to onshore, goes mid scale, small scale, large scale and that provides a lot of versatility and also liquefying natural gas is not something that’s easy. Likewise, when you look at the other sectors we play gas infrastructure, compression, pipeline, being able to have the substations in compression.

Our compressors are some of the best in the world and also the marrying that we do with the gas turbines is some of the most sophisticated engineering so as to enable our customers to have efficiency and profitability at the end of the day.

Saurabh, Analyst, Bank of America: Right, right. No liquefaction is one thing, right. But like you said, it’s really natural gas, right. And no matter what you do, you have to compress all liquefy gas, right. So the compression side of things, midstream gas infrastructure FPSOs, there are a lot of other end markets outside of liquefaction where you play.

And again, the order book is getting more and more diversified, right? So maybe just spend a little bit of time on the non LNG part of your IT business?

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: Yes. And I think for those of you that looked at the company last year, it was a great example of the versatility and the diversity we have within our portfolio. At the beginning of the year, I can remember getting phone calls when the LNG pause was announced by the prior administration with a lot of people questioning our outlook for orders given that LNG is a component and they felt a large component. We successfully achieved over $13,000,000,000 in orders. We maintained our guidance throughout the year and it’s really because of the versatility and diversity from onshore offshore production, the gas infrastructure, good example being in The Kingdom Of Saudi Arabia, the Master Gas System Free, Algeria, Hazar Amel.

And these are infrastructure developments that are going to continue. As you think of natural gas being increased as an energy mix, you’re going to need to invest in the infrastructure as well to obtain the molecule, be able to process the molecule and be able to transport the molecule. And FPSOs, as you look at seven to nine a year, we see that being constant going forward. And now most recently, we’ve got also the opportunity with power generation and data centers. So we see a lot of tailwinds across more than just LNG, but the diversity of our portfolio.

Right, right.

Saurabh, Analyst, Bank of America: No, exactly. I want to touch on the data center topic a little bit because you issued two press releases I think in the last ten days or maybe two weeks, something like that, right? Maybe talk to that opportunity, right. How broad is that opportunity? How clear is it?

And what’s the potential for AKUx?

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: It’s getting clearer and clearer. I think everybody knows that there is a big push from a generative AI perspective, the huge incremental CPU usage and the requirement for data centers. And as you look at The United States in particular where we were at an energy surplus, Now the view is we’ll have an energy shortage and a lot of that is driven by the incremental consumption from data centers. What we’re able to provide is that off grid power supply and that is from our NovaLT turbines. They are distributed power generation and it is a quick way to be able to set up a data center when time is of the essence.

And we have shown ourselves as gaining contracts with Turbinex, which we announced last week, which again is supplying those type of gas turbines to data centers. And then we’ve also if you look at Frontier Carbon Solutions provided turbines as well as CCS solutions. And Frontier is looking to have not just the data center powered, but then also be able to capture the CO2 and reinject the CO2 and store the CO2. That brings into play the oilfield services side of the house, the knowledge we have on the subsurface, the knowledge we have on well construction, knowledge we have around the whole storage capability. And so these are examples of what we’re seeing not just in North America, but then also globally as you’re looking to speed to market for the data centers that need to go in today and be powered today where there is no grid available and there is no utility scale that can be matched at the same time.

As we go forward, we also have the new technology, which is NetPower, a separate company, but we provide the turbo expander and that’s 300 megawatts of clean power solutions, no emissions. And we think that as we go forward will be an opportunity for us as well with data centers once we go to market in twenty twenty eight, twenty twenty nine with the actual units available.

Saurabh, Analyst, Bank of America: Right, right. And Lorenzo, you mentioned speed to market is critical in data centers, right? How quickly can you actually supply these NOVLT turbines?

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: If you look at current lead times, you’re looking at twelve to eighteen months if you were to audit it and we have to obviously manufacture it and provide it. We also have inventory on hand and so some of those lead times are reduced in the way in which we package accordingly. So we work with our customers to make sure that we match up what their needs are and work collaboratively on that. And so far, we’ve seen the benefits of being able to do that with the orders that we’ve announced and a strong pipeline going forward. Right, right, right.

Saurabh, Analyst, Bank of America: I think so far Lorenzo, we have spent a lot of time on equipment side of things, right. I do want to make sure that we spend time on the services side of things within your gas tech services business. It’s a very differentiated, very long tail business, right, high margin. Maybe speak to that opportunity a little bit, right, especially given how much your installed base is set to go up?

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: It is. And it’s sometimes the underappreciated part because we talk a lot about the equipment going in. The beauty about this equipment going in is that it’s razor blades. And when you look at critical equipment, it consume parts. It is there for a long time.

And as the OEM we have contractual service agreements, we have MRO agreements, we provide materials, we provide services on an ongoing basis. And so we have over $15,000,000,000 of services in backlog in our industrial energy technology business. And as you see the installed base continue to go up, an example being LNG equipment, a 70% increase in our installed base. We have a high attachment rate to services and contractual service agreements, which will go for twenty five years. And obviously that’s similar to other scenarios is at a margin rate that’s very attractive and also the longevity of the service contracts.

Right,

Saurabh, Analyst, Bank of America: right, right. And then the one other aspect of the IT business is Climate Technology Solutions, right, new energy part of the business, which has been accelerating honestly. You’ve been doing better than the prior year with every passing. You’re right. I think you did what $1,300,000,000 in orders last year.

You plan to get to $6,000,000,000 to $7,000,000,000 by 2023. Talk to that. What’s driving the growth in that business and what happens between now and 02/1930, is that a mix change?

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: Yes, we set ourselves up for being a participant in what is both energy expansion and also a desire to lower emissions. And we think that desire is still there and also the project pipeline is very active. And we call it our new energy and we laid out a target of $6,000,000,000 to $7,000,000,000 by 02/1930. We started out a few years ago with only $250,000,000 We closed out last year with just over $1,300,000,000 and it’s broken down into carbon capture utilization, storage, you’ve also got hydrogen, you have geothermal, you have clean integrated power solutions and you have emission abatement and measurement. And when you think about deflaring opportunities, large projects where gas is being flared or methane is being flared and we can sequester that and reuse it and actually bring value to it.

So we see a continued progression globally on the opportunities here. The addressable market, again, we see a $60,000,000,000 to $70,000,000,000 across this. And today the pipeline about 30% to 40% is CCUS than the other relevant parts make up the rest. And as we go forward, we feel very confident that the mix will continue to evolve and also there’s potential for further increases as we go forward. But there is no stopping the aspect of also value of CO2 and bringing lower emissions into focus.

Right, right.

Saurabh, Analyst, Bank of America: So clearly there is a lot of growth opportunity, very diverse set of growth opportunity for you. If we just pivot to the margin side of things a little bit, right, you were at 15% margin, I think in 2023. This year’s guide is 18%. Your target is 20% for 2026. What is driving that margin expansion?

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: We laid out very clear targets for margin attainment in 2022 and we said for our Oilfield Services and Equipment business 20% EBITDA in 2025. We’re right on track there. And for our Industrial Energy Technology business, 20% by 2026. And as you see the progression, it’s really built off a couple of things. First of all, the backlog and the pricing and backlog as we convert the backlog is at a better pricing level than it’s been historically.

Also the volume and productivity as we go through the manufacturing, as we go through the actual output of the projects, it’s coming through with the productivity and a lot of credit to the team and Ganesh for the Kaizens and all the work that’s been done in streamlining and providing that productivity. Then you’ve got the industrial businesses that are returning back to the historical margin rates. We had some supply chain challenges with chip constraints. Most of those are through and so now we’re getting back the volume and the gross margin was always good, but now we’re seeing the EBITDA rate come up as well. And as we go forward, you’ve got R and D, which we’ve stepped up, but as we’re increasing volume, the liquidation of that and its impact comes down.

So we’ve got clear line of sight to 20% EBITDA in 2026 and that’s only a point in time. We also have a destination that’s higher than that and that’s why we’re going to be giving a further update on September 4 because we want to show the journey of progression as we go through Horizon two. Right, right.

Saurabh, Analyst, Bank of America: The productivity front, Lorenzo, I think you spoke on the call last quarter that with the same roofline you are able to produce 40% more equipment in your Florence facility, right? So that’s a big number and speaks to what the Venetian team has been doing.

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: Correct. And there’s a huge focus on that continuing and we really have been able to variableize a lot of what people in the past have viewed as a fixed cost structure.

Saurabh, Analyst, Bank of America: Right, right. Let’s pivot a little bit to the OFSE business, Lorenzo. That’s obviously more cyclical and tied to your conventional drilling and completion spending cycle, but you are more levered to production than a lot of your competitors, right. So maybe speak to that business a little bit. How are you different on the production front and what’s your strategy in that business?

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: On the Oilfield Services and Equipment, we’ve had a very good presence within chemicals as well as electrical submersible pumps. And when you look at the weighting, we exited fracking in The U. S, we exited a number of the commodity areas. And our focus is really on international and mature asset solutions. And when I talk about mature asset solutions, this is about doing more with what you have today from the existing wells.

And if you think of global production, about 70% of global production comes from mature assets. Well that’s been around for twenty five years or fifty percent has been recovered of its resource. We can through our technology, through the combination of the chemicals, the ESPs, the digital array of software that we provide increase that production. An example is in a field we were able to increase production by 40%, fifteen thousand barrels a day by providing these capabilities. And we see that as being a CapEx light way to make sure that we continue to increase production as is needed from the demand.

And we are less focused on the high CapEx of the exploration and we focus much more on the mature assets and the solutions and also the contribution of synergies with our industrial energy technology. If you think about having these assets in the field, you need to provide power generation to electrify them. You need to provide compression. And so we’re able to provide a capability and synergy between our two business areas to be able to effectively get more out of these mature assets. And we think that’s going to be a key focus going forward as people want to be more CapEx disciplined and actually focus on the OpEx.

Right, Right.

Saurabh, Analyst, Bank of America: And again, it’s big production is bigger within your portfolio, but you’re also the market leader, right? ESPs, I think you’re the biggest ESP company. Production chemicals, you are one of the two market leaders, clear market leaders out there, right?

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: We have over 50,000 ESPs installed. We are present globally with new chemicals facilities in Singapore and The Kingdom Of Saudi Arabia. So we made these decisions a few years ago to be ready for what we think is going to be a big continued focus on unconventional and also mature onshore wells and it’s also relevant to gas and you’re seeing a lot more gas production as well from mature assets.

Saurabh, Analyst, Bank of America: Right, right, right. I want to spend some time on the synergies between the two businesses, right. But before we do that, Loretta, maybe let’s spend a little time on the margin outlook for the OFSE business. 20% target, your guidance is there. Yes.

It’s only

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: a point in time and as you look at the progression again, there’s still room to go. I think when you look at what the teams achieved over the course of last few years with Maria Claudia and now also with Amerino, a lot of credit in self help. And we have been really since the integration rationalizing, simplifying, exiting certain commodity areas, making improvements in the way in which we have field personnel and the connectivity between our regions, our product segments within Oilfield Services and Equipment. And you look at the Oilfield Equipment business now being at industry margin rates and great progression there from the tree perspective and the flexible side. So where do we go from here?

We reached the 20% this year and then we continue to move forward. There’s still a gap to some of our peers that we think we can close through self help and also through the focus that we have on mature asset solutions and we’ll be depicting that on the next Capital Markets Day. But I want to be clear that we’ve always said we have to get to a point in the journey of the 20% and then we continue moving forward. Right.

Saurabh, Analyst, Bank of America: No, definitely looking forward to that Capital Markets Day. I think all of us and then like I said, Lorenzo, people do and you did your strategic analysis in the past, right? Do these businesses belong together, IT or FSC or do they not, right? Obviously, you came out with a conclusion that they do. Yes.

Right? So maybe speak to that a little bit. Why did you reach that conclusion? What are the synergies in the two businesses?

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: When you look at the two areas and you look at the two segments, first of all, there’s very much a homogeneous customer base. And when you look at the revenues across the two and you look at the customers, 70% is consistent between the two segments. And as you look at the way in which the industry is evolving and you look at also how some of the international and national oil companies are changing. They’re moving into the areas of hydrogen. They’re moving into developing LNG.

They’re moving into geothermal. And when you think about all of this, it brings into focus the combination between subsurface knowledge and topside equipment and being able to drive the synergy associated with that. And scale matters with these customers. I’ll give you a good example of a recent announcement in Guyana with Exxon Guyana. We have the top side equipment on the FPSO as well as then the chemicals that actually provide a better outcome when you combine the two together and we were able to show that.

As you think about a kingdom of Saudi Arabia and Aramco, as they think about their gas and you look at Geophora and you look at the gas infrastructure that’s required as well as then on the pipeline and Master Gas System two and the subsurface knowledge. Algeria with again the similarity of being able to combine capabilities. So on the data centers, I gave you the example of what was just announced relative to data center turbines with CCS being combined. We’ve also got the Valley Resources, which again is an opportunity where you see the combination of the two segments coming together. So I think you’re going to see these come more to the forefront and we see it as a key differentiator for Baker Hughes going forward.

Saurabh, Analyst, Bank of America: Right, right. One other thing that comes up Lorenzo is on the digital side of things in your business, right. You talked about Lucepa a fair amount on your calls, right. Maybe talk about the importance of digital, Lucepa maybe specifically and what are you doing in that domain?

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: So we see digital as one of the key themes that is going to enable productivity, efficiency and reduce downtime.

Saurabh, Analyst, Bank of America: In the oilfield services, we call it Lucepa and

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: it’s really from an aspect of being able to pinpoint also with Corva and other software, the most best location for actually retrieving the resource, maintaining the uptime of the ESP and providing that guidance to the operator in an informed fashion and being able to anticipate what’s next. As you look at Corden, which is on the industrial energy technology side, again similar aspects of asset monitoring, detection of anomalies and preventative actions being taken. And what we’re working on is really providing that visibility now across the Wing to Wing by also incorporating Lucepa, incorporating Cordent around CCUS with our CarbonEdge. And these are things that for the operator provide insight and then also give them insight on the balance of plant. So further productivity and efficiency to bring down extraction at a lower cost or productions into the effective molecule at a lower cost.

Saurabh, Analyst, Bank of America: Right, right, right. And again Lorenzo, like I said at the beginning, I have been meeting with a lot of investors the past ten days and to wrap up OFSC, I do want to talk about the recent OPEC plus decision to start unwinding their cards effective April. Talk a little bit about that, how is that going to impact your OFSC business?

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: I’d say at the moment and again our overall guidance for the year has not changed. We have seen a I think choppy start to the year. And in particular when you think of oilfield services relative to the OPEC plus announcement and its impact on some of the pricing out there as you look at Mexico and some of the activities reductions that are taking place there. So as we look at the first quarter, some choppiness there, also tariffs and some of the day to day announcements that we’re seeing obviously create some pause in some decisions being made. So we’re working through all of those.

Again, no change to the overall year guidance, but I think you’ve got some choppy turmoil just because of these external factors in the first quarter as people understand exactly what’s happening.

Saurabh, Analyst, Bank of America: And we think that they will resolve themselves as we go forward. Yes. I do want to pivot to the cash flow side of things Lorenzo, but before that a couple of the questions that have been getting a lot lately. One is on tariffs. So So, Minh, you can touch on that.

What’s the impact on baking use? What are you seeing right now?

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: So, we’ve got a very diversified supply chain. And again, we’ve modeled various scenarios. Also the direct materials that we buy that are impacted from tariffs are very small. We’ve got buying and selling that takes place from different locations. We’ve also got a large international content of where our shipments go.

So at this stage, we don’t see a material impact from tariffs. Clearly, we’re monitoring the situation, working with our customers, also the contracts we have in place, the commercial agreements, different ways in which titles change all comes into a factor. The good thing is we’ve got flexibility in our supply chain and we’ve been through this before. Tariffs are not new to us and we’ve seen them in prior administrations and we’re navigating and working with our customers and partners and making sure that we manage the impact. At this stage, we don’t see an impact.

Right, right.

Saurabh, Analyst, Bank of America: Plus it’s a fast moving situation, right. We’ll see how things evolve. We’ll obviously adapt your strategy to that, right. And the one other thing that I hear a lot from people these days is the Russia Ukraine situation, right? How does that impact, right?

If we need if we reach a resolution on that conflict, how does that impact Baker Hughes, especially on the LNG side of things for you?

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: Well, I hope we come to a resolution and piece is a good outcome for all relative to impact on Baker Hughes. We exited Russia in 2022. So clearly we’ll have to assess what the situation is of any peace agreement and also what the rule of law is, what sanctions are in place and also from a Baker Hughes perspective if we wish to evaluate any reentry or not. At this stage, we’re monitoring the situation. I will say that from an impact of Russia reopening up, we don’t see a negative impact.

Again, the flows of Russian resources have been going elsewhere and they’ll continue to be going into different locations. Not that much came off the market. And so we think that the energy demand is strong. And again, it’s an all of the above is necessary. And from an outlook of Baker Hughes, if Russia is open, there’s net upside and it’s something that we would have to evaluate.

Got it,

Saurabh, Analyst, Bank of America: got it, right. Louis, I know we are running out of time. I’m looking at the clock right here. So let’s focus on free cash flow a little bit. Clearly, you go high 40% EBITDA of free cash flow conversion this past year.

Guidance is 45% to 50%, but we know your target is to get to above 50% free cash flow conversion, right? So what steps are you taking to get there above 50% rate and when should we expect you to get there?

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: Yes. And what we’ve said is through the period you can see us from a conversion perspective at about 50% and when you look at the work in progress, it’s really improving the way in which the billing cycles, the collections and Ahmed in fact has been running our free cash flow initiative for over a year and we feel very good about the processes being improved. We think there’s still a lot that can be unleashed on the oilfield services and equipment side as well as we go forward. And so that comes from process improvements and be able to sustain that 50% free cash flow on a full period cycle. Right, right.

Saurabh, Analyst, Bank of America: And you’re returning 60% to 80%, right, so at least 60% of that cash to shareholders, right, that we should still expect that strategy?

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: Yes, our policy hasn’t changed when we look at returning to shareholders sixty percent to 80%. That’s through dividends, which we’ve maintained and increased even through the pandemic maintaining them and then through buybacks which are opportunistic at a time and we have a very solid balance sheet. We want to have a good balance sheet that’s strong which provides us flexibility and continue to return 60% to 80% to shareholders.

Saurabh, Analyst, Bank of America: Okay. I think we are running out of time, Lorenzo. Maybe we can take one question from the audience if somebody has it. Otherwise, we’ll just wrap it up over

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: Hi, Lorenzo. Thanks for taking the time. Any views you can share on upcoming M and A or spaces you’d like to spend more time in? As we’ve said before, we’ve been performing a portfolio review consistently. We’ve made some technology investments.

If you look at brush on the Industrial Energy Technology side for the electric motors, you look at also Quest Integrity on the inspection side and what we did with Altus on the Oilfield Services side complementing the completions portfolio we have. So we’re always going to be looking at ways in which we can upgrade our portfolio and continue to invest in new technology and that will be a continuing exercise.

Saurabh, Analyst, Bank of America: Fantastic, Lorenzo. I think let’s stop over here. We are out of time. But thanks a lot for the time and thanks a lot for the discussion.

Lorenzo Simonelli, Chairman, President and CEO, Baker Hughes: Thank you very much.

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