Baker Hughes Company
Q3 2022 Earnings Call Transcript

Published: 19 Oct 2022

[Operator:]

Good day, ladies and gentlemen and welcome to Baker Hughes Company Third Quarter 2022 Earnings 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.

[Jud Bailey:]

Thank you. Good morning, everyone and welcome to the Baker Hughes third 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.

[Lorenzo Simonelli:]

Thank you, Jud. Good morning, everyone and thanks for joining us. We were generally pleased with our third quarter results with strong performance in OFS, while TPS successfully managed multiple challenges. We also saw strong orders performance with continued momentum in OFE as well as TPS. As I mentioned during our second quarter earnings call, the macro outlook has grown increasingly uncertain. The global economy is dealing with the strongest inflationary pressures since the 1970s, a rising interest rate environment and sizable fluctuations in global currencies. Despite these economic challenges, we remain constructive on the outlook for oil and gas and believe that underlying fundamentals remain supportive of a multiyear upturn in global upstream spending. Operators around the world have shown a great deal of financial discipline, which we expect to translate into a more durable upstream spending cycle even in the face of an unpredictable commodity price environment. In the oil market, we expect continued price volatility as demand growth likely softens under the weight of higher interest rates and inflationary pressures. However, we expect supply constraints and production discipline to largely offset any demand weakness. This should support price levels that are conducive to driving double-digit upstream spending growth in 2023. In the natural gas and LNG markets, prices remained elevated as a multitude of factors increased tensions on an already stressed global gas market. Europe’s surging demand for LNG has redirected cargoes from other regions and created an exceptionally tight global market that could get even tighter in 2023. This situation has resulted in record high LNG prices, but has also slowed down switching from coal to gas in some developing countries. We believe that significant investment is still required over the next 5 to 10 years to ensure natural gas’ position as a key part of the energy transition. However, while the current price environment is attractive for new projects, this is also a pivotal time for the industry with price-related demand destruction occurring in some markets and LNG developers facing inflationary pressures and a higher cost of capital for new projects. As a result, we believe the landscape maybe shifting in favor of established LNG players with the scale, diversity and financial strength to navigate the risks and uncertainties. Those with brownfield projects and projects that utilize faster-to-market modular lines maybe particularly advantaged in the coming years. On the new energy front, recent policy movements in Europe and the United States are likely to help support a significant increase in clean energy development. In the U.S., the Inflation Reduction Act should be particularly impactful in accelerating the development of green hydrogen, CCUS and direct air capture. While we have not changed our expectations for the ultimate addressable market sizes in these areas, the attractive tax incentives could accelerate development ahead of previously expected forecast. We also believe that the bill will create favorable economic conditions for our portfolio of new energy investments. Given the dynamic macro backdrop, Baker Hughes is focused on preparing for a range of scenarios and executing on what is within our control. Last month, we announced the restructuring and resegmentation of the company into two reporting segments

[Brian Worrell:]

Thanks, Lorenzo. I will begin with the total company results and then move into the segment details. Orders for the quarter were $6.1 billion, up 3% sequentially driven by OFE and OFS partially offset by a decrease in Digital Solutions and TPS. Year-over-year, orders were up 13% driven by increases across all four segments. We are pleased with the orders performance in the quarter following strong orders in the first half of the year. Remaining performance obligation was $24.7 billion, up 1% sequentially. Equipment RPO ended at $9.1 billion, up 3% sequentially and services RPO ended at $15.6 billion, flat sequentially. Our total company book-to-bill ratio in the quarter was 1.1 and our equipment book-to-bill in the quarter was 1.3. Revenue for the quarter was $5.4 billion, up 6% sequentially driven by increases across all segments. Year-over-year, revenue was up 5% driven by OFS and Digital Solutions partially offset by lower volumes in TPS and OFE. Operating income for the quarter was $269 million. Adjusted operating income was $503 million, which excludes $235 million of restructuring, impairment, separation and other charges. The restructuring charges in the third quarter were primarily driven by cost reduction projects for the recently announced reorganization as well as global footprint optimization in our OFS and OFE businesses. Adjusted operating income was up 34% sequentially and up 25% year-over-year. Our adjusted operating income rate for the quarter was 9.4%, up 190 basis points sequentially. Year-over-year, our adjusted operating income rate was up 150 basis points. Adjusted EBITDA in the quarter was $758 million, up 16% sequentially and up 14% year-over-year. Adjusted EBITDA rate was 14.1%, up 120 basis points sequentially and up 110 basis points year-over-year. Corporate costs were $103 million in the quarter. For the fourth quarter, we expect corporate costs to be flat compared to third quarter levels. Depreciation and amortization expense was $254 million in the quarter. For the fourth quarter, we expect D&A to increase slightly from third quarter levels. Net interest expense was $65 million. Income tax expense in the quarter was $153 million. GAAP loss per share was $0.02. Included in GAAP diluted loss per share was a $50 million loss from the net change in fair value of our investment in C3.ai, which is recorded in other non-operating loss. Adjusted earnings per share, was $0.26. Turning to the cash flow statement, free cash flow in the quarter was $417 million. For the fourth quarter, we expect free cash flow to improve sequentially primarily driven by higher earnings and seasonality. As we highlighted in the second quarter, we still expect free cash flow conversion from adjusted EBITDA to be below 50% for the year. In the third quarter, we continued to execute on our share repurchase program, repurchasing 10.7 million Baker Hughes Class A shares for $265 million at an average price of $24.79 per share. Before I go into the segment results, I would like to remind everyone that we will be changing our reporting structure in the fourth quarter to the two business segments, OFSE and IET, which went into business segments, OFSE and IET, which went into effect on October 1. Although we will go from four reporting segments to two, our aim is to provide more transparency across the different businesses. Going forward, we will be reporting total OFSE revenue, operating income and EBITDA. We will also provide Tier 2 revenue disclosures across the four business lines of well construction, completions intervention and measurements, production solutions and subsea and surface pressure systems. We will provide a geographic breakout of OFSE revenue into four regions

[Jud Bailey:]

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

[Operator:]

Thank you. And our first question comes from James West from Evercore. Your line is now open.

[James West:]

Hey, good morning, Lorenzo, Brian and Jud.

[Lorenzo Simonelli:]

Hi, James.

[Brian Worrell:]

Hey, James.

[James West:]

And Brian, as a sad to see you depart Baker Hughes. Thanks for all your help and hard work all these last several years putting the companies together.

[Brian Worrell:]

Yes. Great. Thanks, James. And I’ll see you down in Chapel Hill at the being down.

[James West:]

Exactly. Perfect. Looking forward to it. So Lorenzo, curious as we think about the cycle here, obviously, there is a bit of uncertainty in the market, but oil and gas hasn’t seen much of a capital formation cycle. And so it looks to me like we’re in for several years of significant growth particularly in the international and the offshore markets, as you highlighted in your prepared remarks. I wonder if you could expand a little bit further on that and kind of where your customer conversations, your customer activity what you’re seeing there in terms of the outlook as we go into ‘23 and beyond?

[Lorenzo Simonelli:]

Yes. Sure, James. And as I mentioned in the pre-prepared remarks, overall outlook is constructive. And it’s definitely not free from volatility and challenges as you’ve seen in the continued supply chain constraints and likely global economic weakness in the broader industrial activity. But as you look at Baker Hughes, as an energy technology company, we feel we’re very well positioned going into 2023. And as you look at the two reporting segments, let’s maybe kick off where you started. On the Oilfield Services and Equipment, again, we see a multiyear upturn in global upstream spending and double-digit upstream spending growth in 2023. As you look at offshore, as you look at the international market, we’ve seen Latin America come back, again, the Middle East with Saudi as well as UAE. So we feel good that it is a multiyear upstream uptick as we go forward. And then as you look at the industrial and energy technology, we continue to see the LNG upcycle. We’ve mentioned before the 100 to 150 MTPA over the next 2 years. CPS remains on track to generate $8 billion to $9 billion in orders in 2022 and 2023. And as you look at some of the new recent regulations on the new energy front, we see policy movements in Europe and the U.S.A. that are likely to help support the – and accelerate some of the clean energy development. So again, market from an energy technology perspective is constructive. And then our announced restructuring provides at least $150 million of cost out. It sharpens our focus, improves operational execution and better positions us to capitalize on the quickly changing energy market. So heading into ‘23, while we’re preparing for the volatility, we are confident we can negate these and we’ve got the market backdrop.

[James West:]

Okay. That’s great. And maybe if I could dig in, just a follow-up on the clean energy side, I know you and I in the past have kind of debated hydrogen versus DCS and kind of how that would play out. Does the IRA bill and the significant benefits for both, quite frankly, change and if you’re thinking on kind of the timelines for both carbon capture and for hydrogen or green hydrogen and the development of those two markets.

[Lorenzo Simonelli:]

Yes. Sure, James. And as you look at the Inflation Reduction Act, also in conjunction with the earlier past investment and Infrastructure Jobs Act, it provides significant investments and incentives for the deployment of critical decarbonization technologies. We think that, again, it will be particularly positive for green hydrogen, CCUS and direct air capture. You mentioned on hydrogen, and the act establishes a new production tax credit for $3 per kilogram from green hydrogen, and blue gets up to $1 per kilogram. So we think that these tax credits will be a significant factor in attracting capital. And I can tell you that customer discussions have actually intensified since the passing of the Inflation Reduction Act. And we see a number of projects that are looking to see how they proceed. Likewise on carbon capture and also CCUS, the bill makes a meaningful improvement on what was already out there from the 45Q. It’s increasing to $85 per metric ton for geologic storage and 180 per metric ton for direct air capture. So again, these advances, in particular, have seen more conversations around direct air capture. And as you know, we’ve got investments from a technology standpoint in that area, and we see increasing conversations with our customers. So as we look at new energy, again, for 2022, we’ve already seen orders at 170. And we feel good that we’re going to end at the 200 or above for 2022.

[James West:]

Alright. Thanks, Lorenzo.

[Operator:]

And thank you. And our next question comes from Chase Mulvehill from Bank of America. Your line is now open.

[Chase Mulvehill:]

Hey, good morning, everyone.

[Lorenzo Simonelli:]

Hey, Chase.

[Brian Worrell:]

Good morning, Chase.

[Chase Mulvehill:]

Hi, Brian. Look, this is sad day. I really hate to see you go. I know I speak for everybody, and you’re going to be deeply missed. I mean, I know everybody at Baker, everybody on Wall Street. So really hate to see you leave. But hopefully, we can grab a drink or something before you get out of there.

[Brian Worrell:]

Definitely, Chase.

[Chase Mulvehill:]

Yes. I guess I will kick a question off and ask you about capital allocation. Obviously, you have kind of continued at the same pace of buybacks, about 265 in that range every quarter. You step into 2023 free cash flow conversion is going to get better. Obviously, you look at the base business it’s going to continue to get better. So free cash flow could continue – should continue to expand. And you should have some excess cash that you have to decide what to do with, whether it’s special dividend, whether it’s increasing the base dividend, whether it’s continuing with the pace of buybacks. So how should we think about capital allocation as we kind of go forward?

[Brian Worrell:]

Yes, Chase. Look, no real change in terms of how we think about financial policies and our philosophy here in terms of returning capital to shareholders. We are still committed to returning 60% to 80% of our free cash flow back to shareholders through both dividends and stock repurchases. As you pointed out, we’ve had a healthy buyback program this year. We’ve already exceeded that level for this year in the first 9 months as we bought back about $727 million worth of shares, and there is more to come in the fourth quarter. And if you combine that with our annual dividend payout of about $735 million, we will likely return over or around $1.5 billion or more to shareholders this year. And as you pointed out, we’ve got a pretty strong track record since coming together and forming the new Baker Hughes in 2017. So look, right now, I see our stock as an attractive use of free cash flow, buying that back. As you know, we have not increased the dividend in some time. And I think going forward, looking at a combination of dividend increases over time as well as a stable, consistent buyback program is the right way to think about it. Ultimately, I believe this is an attractive shareholder return policy. And you’ll see us continue to use a combination and fluctuate the buyback really as we continue to generate strong free cash flow. So we’ve listened to what investors have been saying and taking that feedback. And I think this combo is the right way forward for Baker Hughes, especially given the strength of the portfolio and our free cash flow generation in the past as well as what it looks like going forward.

[Chase Mulvehill:]

Alright. It makes sense. As a follow-up question, maybe this one is for Lorenzo. On the subsea business, the SPS business, obviously, Flexibles has been pretty strong. Maybe the subsea business has been maybe a little bit softer. Obviously, you’ve had a different strategy in the past of kind of potentially looking at alternatives for the business. But you look at into the first half of next year to potentially announce a new strategy or ultimately, what you’re going to do with this business. So when we think about this business and what you could potentially do with it, could you just lay out some of the options of kind of what’s you’re exploring and potential go-forward for this business?

[Lorenzo Simonelli:]

Yes. Sure, Chase. And as we have stated, we are doing a wholesale reevaluation of our SDS business, which is underway. We have already identified multiple facility rationalization opportunities. We feel increasingly confident about our ability to improve the profitability in this business. And we are evaluating a range of options that includes a smaller, more focused strategy that could be a good balance for the two major other players. And we look to complete this analysis and update you at the first part of 2023. So, feeling good about the progress, we have got the synergies that are clearly visible and looking to move to profitability.

[Brian Worrell:]

Yes. And Chase, the only thing I will add here is just remember, there are multiple parts of this business. And we have got an incredibly strong, flexible pipe systems franchise here that’s doing incredibly well with record orders sort of two quarters in a row. So, it is it is a bifurcated strategy in the portfolio here. And I am encouraged by what we are seeing so far with the changes that we have recently made. So, look forward to updating you guys more as we start to execute a little more.

[Chase Mulvehill:]

Okay. Great. Sounds good. I will turn it back over.

[Operator:]

And thank you. And our next question comes from Arun Jayaram from JPMorgan. Your line is now open.

[Arun Jayaram:]

Firstly, Brian, we wish you the best as you depart Baker Hughes, but we appreciate all the support you have provided to the sell side over the years.

[Brian Worrell:]

Great. Thanks Arun.

[Arun Jayaram:]

A couple of questions. First, on the LNG side, you guys have recently talked about a dynamic where some of your services work was being pushed out by LNG customers just given the strength in global LNG prices. I guess my first question is this lost revenue for Baker, or is there perhaps a catch-up in terms of maintenance work in 2023? And perhaps, Lorenzo, could you frame the longer term opportunity as the installed base of LNG rises, what could this mean for Baker’s services segment for LNG?

[Brian Worrell:]

Yes. Arun, I will start out. We did start to see some push-outs in LNG as well as some of the transactional service outages as well, just given the higher commodity prices. And our customers obviously wanted to capitalize on that. This is not lost revenue for Baker Hughes. If I look everything that has started to push out, we will see some of that coming in likely in the fourth quarter based on the schedules that I have seen. But largely, all of that will happen in 2023. The big thing that we are working through with customers right now is will there be things in 2023 that likely push out a little bit. But look, it is not lost revenue and should be a tailwind for services going forward. I mean look, I would anticipate sitting here today that there should be elevated services revenues in 2023 as operators do look to catch up on the maintenance. And just to add, look, for CSAs, it’s generally a three-month to six-month window that they can move things around contractually. As you know, we have guarantees associated with those. So, to keep those in place, there is a window there. On the transactional side, they have a little more flexibility, but it is a bit of a risk in terms of running things in excess of recommendations and those sorts of things. So, in the past, I have actually seen when those types of service things get pushed out where we actually get more revenue because unexpected things happen. So, again, this is a longer cycle business and what I see here is revenue definitely coming in and not lost revenue. And then I will let Lorenzo comment on the longer term outlook with the massive increase in installed base that we are seeing.

[Lorenzo Simonelli:]

Yes. Arun, as you look at the future, again, LNG outlook is positive. As I mentioned, the 100 MTPA to 150 MTPA of LNG FIDs over the course of the next 2 years, we are comfortable that, that’s coming through and also see more pipeline of projects going into ‘24 and ‘25. Already this year, you have seen 31 MTPA LNG projects. You have seen us announce the Plaquemines, Cheniere Corpus Christi. And because you look at the future, our installed base by 2025 goes up 35%. And that’s good for the services. As Brian mentioned, that comes in after that. So, an installed base growing and that’s 2025 and beyond is positive for our business.

[Arun Jayaram:]

Great. Lorenzo, maybe a follow-up. You reiterated your 100 MTPA to 150 MTPA outlook over the next couple of years. You did mention how you are seeing some impacts from inflation and financing challenges, think about Driftwood. And so I just wanted to see if you could put that into context or do you expect some of the brownfield opportunities to offset some of these challenges we have seen?

[Lorenzo Simonelli:]

Yes. Again, I would acknowledge that the environment has become more challenging, in particular, for some of the independent developers. As you mentioned, cost inflation, supply chain bottlenecks. And generally, I would say we would see the landscape may be shifting in favor of more established LNG players, those with the scale, diversity, financial strength and better placed to navigate the risks and uncertainties. Also brownfield projects and projects that utilize the fastest to market modular design are particularly advantaged in the coming years. So, it is plausible that some projects change pace, the build cycle becomes more smoother and more prolonged. But again, I feel confident in the 100 MTPA to 150 MTPA over the course of the next 2 years.

[Arun Jayaram:]

Thank you very much.

[Operator:]

And thank you. And our next question comes from Marc Bianchi from Cowen. Your line is now open.

[Marc Bianchi:]

Hey. Thank you. I wanted to start with digital and get a better understanding of where you see those margins going. If we can get – it looks like maybe revenues getting back to that $600 million level here in the fourth quarter, and perhaps margins are still quite a bit below where they were if we go back a couple of years. What do you think is needed to get those margins back to where they were in 2019 and kind of how likely is that in ‘23?

[Brian Worrell:]

Yes. Marc, I would say if I look specifically into 2023, I would expect DS revenues to increase in the mid-single digit range, which assumes revenue growth from backlog conversion improvements as we start to see some of the chip shortages ease and energy markets remain robust. I do think we may see a bit of a pullback in terms of orders and revenue from some of the industrial businesses due to the likely economic weakness. So, balancing all of that, I don’t see the margins getting back to those ‘19 levels next year, just given the level of conversion that we will have and the level of output. I mean look, while electronics are stabilized right now, I don’t see them getting markedly better next year. So, we are going to be hampered probably by output. And that obviously impacts cost absorption and the ability to drive margin growth there. We are doing a lot on the cost side to continue to take costs out. But there is no reason that this business should not be back to those levels or higher once we get some of these supply chain issues completely behind us. So, the long-term outlook is still pretty good. But right now, it is a supply chain story in terms of being able to get the electronics and the chips through so we can get output. The one thing I will say, and Lorenzo highlighted this when he talked about it, we have worked on a lot of things to redesign. We have done engineering programs. We are resourcing from new suppliers. So, everything that’s within our control, I have to give the team credit, they have been executing on. And as the global demand situation changes, I think you will see some improvement there.

[Marc Bianchi:]

Okay. Super. And I will just echo what others have said, Brian. Thank you so much for your time. We are going to miss you.

[Brian Worrell:]

Thanks Marc.

[Marc Bianchi:]

Next question for – you bet. Next question for Lorenzo. You announced this power gen acquisition from BRUSH. I am just curious, you mentioned in the prepared remarks in the press release, like how should we think about the contribution from that business in ‘23 and ‘24? And then sort of what’s the longer term opportunity?

[Lorenzo Simonelli:]

Yes. Look, we are very excited to bring BRUSH into the Baker Hughes portfolio. And we see it playing an important role as it enhances our electromechanical capabilities within industrial and energy technology. If you look at BRUSH, it’s been a trusted supplier for many years. It’s provided us with significant portion of the electric motors that we procure for various applications. And we see electrification playing a critical role in the decarbonizing process within the upstream oil and gas sector as well as industrial sector. So, it’s going to be an important part of the value chain that we wanted to address. Now that BRUSH is in-house, we can work together to shape the next generation of electric motors. You look at the specific applications of oil and gas, power supply, eLNG, distributed power and long also duration energy storage. So, if we have got a holistic view of solutions across the LNG spectrum covered from the technology perspective and BRUSH adds to that, and it’s got facilities located in UK, Czech Republic, Netherlands. And it’s going to allow us to leverage its presence in Eastern Europe to continue diversifying as well. So, feel good about the future elements and its contributions to the company.

[Brian Worrell:]

Yes. And I would say specifically looking at 2023, Marc, I would expect revenue should be around the $200 million mark. And if I look at EBITDA, it’s probably in the $40 million to $50 million range. But remember, the first year of an acquisition, you have got integration costs as well as some increased amortization and depreciation in there. So, that level is probably going to be in the $35 million to $40 million range. So, you are looking at the operating income level relatively small, but definitely some strong EBITDA. And once you get through the integration and some of those early purchase accounting things, you have some very nice margins coming through this. So, we are really excited to have this technology in-house now.

[Marc Bianchi:]

Very good. Thank you so much.

[Operator:]

And thank you. And our next question comes from Neil Mehta from Goldman Sachs.

[Neil Mehta:]

Thank you, Brian. It’s been a pleasure working with you here. The first question is more modeling-specific. You have provided different components of 4Q guidance by segment, but I thought it would be helpful if you could put it all together and go segment-by-segment and help us think through key modeling components as we think about the sequentials into next quarter.

[Brian Worrell:]

Yes. If I take a step back and look at the fourth quarter overall, starting with OFS. International would expect some pretty strong growth prospects for fourth quarter. North America, I would say activity is leveling off here towards the end of the year. And that should really result in solid sequential increase from a revenue standpoint, I would say, in the mid-single-digit range. And look, as I said, EBITDA margin rates should be between 19% and 20%. And the only reason they are not firm at the 20% is just the timing of the sale of the Russia business, which we expect to happen within the quarter and the timing of that and how that plays out, Neil, will be the swing there. But look, Maria Claudia and the team have done an outstanding job and clearly have line of sight to that 20%, especially as chemicals continues to improve as they have done in the last couple of quarters. On OFE, revenue will be flat to slightly higher sequentially based on what I see from a backlog conversion. We will still be below breakeven levels due to the cost under-absorption given the suspension of the contracts that we talked about, primarily really in Russia that have come through. Switching gears a little bit, turbo, given where we are from an equipment conversion standpoint, I would expect revenues to be up double digit in the fourth quarter on a year-over-year basis. And services should show strength as well. But margin rates will likely be modestly lower on a year-over-year basis due to the higher equipment mix that we talked about compared to the fourth quarter of 2021. And then Digital Solutions, look, we have been growing backlog in that business, and you heard me talking to Marc’s question there. I would expect to see strong sequential revenue growth given the backlog and what we see coming through here and operating income, a strong increase in operating margin rate. So, adding all of that up and the moving pieces, it looks to be in line with how folks are thinking about the quarter from an overall standpoint and based on what I see out there today. So, no real significant change here, but a lot of moving pieces that the team is managing and getting through.

[Neil Mehta:]

Yes. That was super, super helpful. The only other question I had was just around FX. And maybe you could just talk about what’s the move in the euro has meant for the business, and just how sensitize the model to changes in FX as well.

[Brian Worrell:]

Yes. Look, I mean I think what we have seen recently, I think we will all agree that the change in the euro exchange rate, we haven’t seen anything like that in a long time. And look, if I take a step back and look at it from a revenue standpoint, the year-over-year impact was about 200 and – roughly $200 million of year-over-year revenue pressure. And the bulk of that was in turbomachinery at about $120 million. Sequentially in turbo, it was around $50 million or so. So, that gives you perspective on the top line. And from a translation standpoint, obviously, you have lower income in euros, so you have lower income in dollars coming from that. But remember, we do hedge economically. And some of those hedges are actually – those hedges were in the money just given where everything moves. So, the net impact at the overall Baker level is much less than that. But you will see some potential choppiness in the segment results as FX does move around, but largely manageable at the bottom line. You see the bigger impact in revenue.

[Neil Mehta:]

Perfect. Thanks team.

[Lorenzo Simonelli:]

Thanks Neil.

[Operator:]

And thank you. And our next question comes from Dave Anderson from Barclays. Your line is now open.

[Lorenzo Simonelli:]

Hi Dave.

[Dave Anderson:]

So, in the release, you mentioned the two fast track LNG projects for New Fortress. You have also been supplying modular compressor trains to Venture Global. So, I am just wondering, it would seem that your technology aside from any kind of financial considerations of your customers, but I would think this technology could enable a larger build-out or at least a quicker build-out of LNG liquefaction. You have talked about the 100 to 150 and the overall 800 million ton per annum figure for ultimate size. So, my question is, do smaller, faster LNG trains potentially push that number higher? I mean presumably we are thinking ‘24, ‘25. But could you just talk about how that market could potentially change in your favor?

[Lorenzo Simonelli:]

Yes. Definitely, Dave. And again, I mentioned, we feel good about the LNG outlook. And we stated 100 to 150 and also mentioned that as you look at projects going forward, brownfield projects as well as those that utilize the fast market modular design are likely to be particularly advantaged in the coming years. As we look at it, we have always said we are going to have a complete solution offering for LNG. And definitely, the aspect of fast LNG and modular is gaining traction right now. And it could lead to more players coming into the field as you look at different gas reserves that are being found and also look to capitalize on those as the need for energy continues. I would say right now, still the outlook is 800 million tons by 2030. I wouldn’t go off that at this time, and we will continue to monitor the situation.

[Brian Worrell:]

Yes, Dave, I would just add that I think having that in the portfolio is very helpful. And if you think about what Lorenzo mentioned, if it’s fast, if it’s modular, if it’s stick build, if it’s large frame, Baker Hughes has that in the solution set. So, we are well positioned there. And I think ultimately, having the fast LNG offering as well as the modular can certainly help alleviate some of the pressure you see in global markets and could ultimately lead to more demand. I think it’s just kind of too early to call that right now, just given the volatility we are seeing. But it’s definitely, I think a tailwind overall for Baker.

[Dave Anderson:]

That’s what I was getting at. And just sort of sticking on the equipment side, you also talked about the 26 compressor trains for the Jafurah Basin in Saudi. And if I also just kind of take into account the ADNOC drilling relationship you have there, I was wondering if you could help us sort of understand Baker’s opportunity in the Middle East on the equipment side versus the OFS side. I normally would have thought the OFS would be still the bigger business and have the bigger growth prospects. But am I – but where does equipment fit in there? Because I wouldn’t have necessarily thought that would have been a huge business, but now you can kind of really start to see that growing alongside the OFS. So, could you just frame that for us a little bit?

[Lorenzo Simonelli:]

Yes, Dave, as you look at our equipment presence, again, we have got a long history in the Middle East, both in UAE and Saudi as well as other countries with regards to both offshore and onshore from a power generation and again, the compression standpoint. So, again, we look at the prospects of that business being very positive going forward. And again, we like the positioning we have both sides of the business there, and both have considerable growth going forward.

[Dave Anderson:]

Okay. Thank you.

[Operator:]

And thank you. And that was our last question. I would now like to turn the call back over to Lorenzo Simonelli for closing remarks.

[End of Q&A:]

[Lorenzo Simonelli:]

Great. Thank you to everyone for joining our earnings call today. Before we end the call, I wanted to leave you with some closing thoughts. Overall, we were pleased with our third quarter results with strong performance in OFS, TPS successfully managing multiple challenges and strong orders performance in both OFE and TPS. Baker Hughes continues to execute on our long-term strategy. And while we are preparing for a volatile environment, we are confident that we can navigate these challenges with the support from our recent corporate actions and our world-class team. I want to also, again, thank Brian for his leadership, support and friendship and wish him well in his future endeavors. I also look forward to welcoming Nancy to the Baker Hughes team on November 2. Thank you for taking the time and I look forward to speaking with all of you again soon. Operator, you may now close out the call.

[Operator:]

Ladies and gentlemen, thank you for participating in the program. You may all disconnect. Everyone, have a great day.