1

A Service Company’s Perspective in 2005David Barr

Group President, Drilling and EvaluationJune 10, 2005

2

Forward-Looking Statements

Some of the things we will discuss today relative to our views on future company performance and results, and other statements notdealing with historical facts, will be forward-looking statements within the meaning of U.S. securities laws. The company cautions that actual results may differ materially from those discussed in these forward-looking statements. You should refer to the additional information contained in our filings with the SEC about the risks and uncertainties that could cause actual results to be different than those contemplated in this discussion. The company’s SEC filings can be viewed at www.bakerhughes.com.

Reconciliation of non GAAP measures referenced in today’spresentation can be found on our website www.bakerhughes.com in the Investor Relations section.

Discussion Topics

Baker Hughes At a Glance-Products

-Organized to support Best-in-Class

Macro Environment- Supply and Demand

- Activity

Challenges

- Industry Challenges

- Service Company Response

Questions

4

Baker Hughes at a GlanceWellbore Focused Oilfield Services

Drilling and EvaluationTri-cone™ bitsDiamond drill bitsDirectional drillingDrilling fluidsLogging-while-drillingWireline logging

Completion and ProductionCompletion systemsMultilateralsIntelligent well systemsArtificial liftChemical systems

Company Overview

6%10%

9%

8%

15% 10%

35%

7% CanadaUnited StatesLatin AmericaEuropeAfricaMiddle EastAsia PacificCIS

Baker Hughes by the Numbers…12 months ending December 31, 2004

Revenue from 85 countries $6.104 billionOperating Income $821.0 millionIncome from Continuing Operations $528.2 million

$1.58 per shareDebt $1.162 billionCapital Expenditures $348.3 millionDepreciation and Amortization $371.8 millionEmployees (over ½ outside the US) 27,000

2004 Revenue

5

Drill Bits Hughes Christensen 1 3 Drilling & Evaluation INTEQ 1 1 3

Drilling Fluids Baker Hughes Drilling Fluids 3 1** 2 Wireline & Testing Baker Atlas 2 1 3

Completions Baker Oil Tools 1 4 2 ESPs Centrilift 1 2 Oilfield Chemicals Baker Petrolite 1

Seismic Western Geco 1* 1*

Drilling and Evaluation

Completion and Production

Best-in-Class

** SII/SLB joint venture in MI

* BHI/SLB Venture in Western GECO

Company Overview

** SII/SLB joint venture in MISource: BHI estimates, Spears & Associates

6

BHI Revenue Trend –Independents MAT Total Revenue

Q498

Q199

Q299

Q399

Q499

Q100

Q200

Q300

Q400

Q101

Q201

Q301

Q401

Q102

Q202

Q302

Q402

Q103

Q203

Q303

Q403

Q104

Q204

Q304

Q404

7

Macro Environment

8

Oil Demand Growth

Source: IEA

North America

Macro Environment

N America

Other OECD

China

Other Asia

RoW

N America

Other OECD

China

Other Asia

RoW

2004/20032004/20032.7 2.7 mbdmbd

2005/20042005/20041.8 1.8 mbdmbd

July 04 forecast

Jan 05 forecast and

revisions

Net revisions since Jan 04 through Mar 05

74

75

76

77

78

79

80

81

82

83

84

85

2001 2002 2003 2004 2005

Dem

and

(mbp

d)

July 04 forecast

Jan 05 forecast and

revisions

Net revisions since Jan 04 through May 05

9

Global Economic Growth

0.02.04.06.08.0

10.012.014.016.018.020.022.024.026.028.030.0

IndiaChina

United States

South Korea

Japan

Euro 4

Mexico

Per Capita Consumption of Oil (Bbls)

Source: EIA, CIA World Factbook

North America

N America

Other OECD

China

Other Asia

RoW

N America

Other OECD

China

Other Asia

RoW

2004/20032004/20032.7 2.7 mbdmbd

2005/20042005/20041.8 1.8 mbdmbd

Macro Environment

10

0

20

40

60

80

100

120

140

160

180

200

220

75 77 79 81 83 85 87 89 91 93 95 97 99 '01

'03

'05

'07

'09

CA

PEX

in B

illio

ns (2

003$

)R

AC

Cru

de (2

003$

)

404550556065707580859095100

Oil D

emand (m

boe/d)

WW Oil DemandCapital Spending

OilPrice

Sources: Baker Hughes; Chase; EIA; BP, Salomon Smith Barney, CIBC, Lehman Brothers

2%

2.5%

Demand, Price & CapEx

WW Oil Productive Capacity

Macro Environment

11

The Supply Challenge125

100

75

50

25

0

1971

1980

1990

2000

2010

2020

2030

Existing Capacity

Development of Existing Reserves

Enhanced Recovery (Brownfield)

Unconventional

New Discoveries

World Energy Outlook 2004, International Energy Agency

Macro Environment

12

450

475

500

525

550

575

600

625

650

675

700

725

750

U.S

. Liq

uid

Inve

ntor

ies

(mm

bbls

)

$0

$10

$20

$30

$40

$50

$60

Oil

Pric

e ($

/Bbl

WTI

)

1/981/97 1/99 1/00 1/01 1/02 1/03 1/04

Lower Inventories

Higher Prices

Higher Inventories

Lower Prices

Oil Prices and Inventory

Normal Range

Euro

USD

Source: Bloomberg (APISCRUD, APISMGAS, APISDIST)

Macro Environment

13

0

10

20

30

40

50

60

70

80Ja

n-00

Jul-0

0

Jan-

01

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Dol

lars

per

Bar

rel

ProjectionsHistory

Crude Oil Price

*The confidence intervals show +/- 2 standard errors based on the properties of the model. The ranges do not include the effects of major supply disruptions.

$51.01

Source: EIA STEO, May 2005

Macro Environment

14

500

1000

1500

2000

2500

3000

3500

2004

Jan

Apr

Dec

Nov

2003

20022005

Natural Gas Storage

Macro Environment

2001

Natural Gas in Underground Storage (Bcf)

Source: AGA, DOE

15

U.S. Natural Gas Depletion

Macro Environment

Macro1104II-1

17% 17% 16% 18% 19% 19% 20% 21% 23% 23% 25% 24% 27% 28% 29% 30%

0

10

20

30

40

50

60

Production Decline Rate of Base:

Bcf

/d

1990

2005E2004E2003E2002E2001E20001999199819971996199519941993199219911990Pre-1990

Drilling Year:

Supply Impact of 30% vs. 19-23% is Under Estimated

U.S. Natural Gas Production HistoryIndicates 30% 2005E Decline Rate

Utilizes Data Supplied by IHS Energy; Copyright 1990-2004 IHS EnergyChart Prepared by and Property of EOG Resources, Inc.; Copyright 2002-2004

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001E 2002E 2003E 2004E 2005E

16

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0Ja

n-00

Jul-0

0

Jan-

01

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Dol

lars

per

Tho

usan

d C

ubic

Fee

t

History Projections

U.S. Natural Gas Spot Prices

Sources: History: Natural Gas Week; Projections: Short-Term Energy Outlook, May 2005.

*The confidence intervals show +/- 2 standard errors based on the properties of the model. The ranges do not include the effects of major supply disruptions.

$6.15

Macro Environment

17

North American Rig Activity

0

200

400

600

800

1000

1200

1/4/

2002

3/4/

2002

5/4/

2002

7/4/

2002

9/4/

2002

11/4

/200

2

1/4/

2003

3/4/

2003

5/4/

2003

7/4/

2003

9/4/

2003

11/4

/200

3

1/4/

2004

3/4/

2004

5/4/

2004

7/4/

2004

9/4/

2004

11/4

/200

4

1/4/

2005

3/4/

2005

5/4/

2005

7/4/

2005

9/4/

2005

11/4

/200

5

Rig Counts

Total US

Canada

Land and Inland Waters

Macro Environment

18

US Offshore Rig Activity

0

20

40

60

80

100

120

140

1/4/

2002

3/4/

2002

5/4/

2002

7/4/

2002

9/4/

2002

11/4

/200

2

1/4/

2003

3/4/

2003

5/4/

2003

7/4/

2003

9/4/

2003

11/4

/200

3

1/4/

2004

3/4/

2004

5/4/

2004

7/4/

2004

9/4/

2004

11/4

/200

4

1/4/

2005

3/4/

2005

5/4/

2005

7/4/

2005

9/4/

2005

11/4

/200

5

Rig Counts

US Offshore

Gulf of Mexico

Macro Environment

19

California Rig Activity

0

5

10

15

20

25

30

35

40

45

Jan-

00M

ar-0

0M

ay-0

0Ju

l-00

Sep

-00

Nov

-00

Jan-

01

Mar

-01

May

-01

Jul-0

1S

ep-0

1

Nov

-01

Jan-

02M

ar-0

2M

ay-0

2

Jul-0

2S

ep-0

2N

ov-0

2

Jan-

03M

ar-0

3M

ay-0

3Ju

l-03

Sep

-03

Nov

-03

Jan-

04M

ar-0

4

May

-04

Jul-0

4S

ep-0

4

Nov

-04

Jan-

05M

ar-0

5M

ay-0

5

Land

Offshore

Macro Environment

20

Industry Challenges

21

Strategic Framework - OutlookConsolidations will continue

– Customers– Service companies

Demographic challenge– loss of experienced service

company hands– Indigenization of workforce

Customer strategy– drive “commoditization”

Service company strategy– Differentiate on technology and

service – Increased responsibility for R&D– Become more international / local

content– Continued cost and capital

discipline – Focus on execution

Industry Challenges

Energy markets– Global hydrocarbon demand to

grow through 2020– Oil and gas price volatility remain – Cycles will continue– Natural gas gains in importance– Increased “brown field”

developmentGeographic shift

– From mature provinces• North America• North Sea

– To Eastern Hemisphere• Middle East• Russia• Caspian

– NOC’s gain in importance– Super majors remain important– Russian / Chinese service

companies to enter the market

22

The Cycles Will Continue

When oil companies believe the rise is sustainable they

increase spending

BOOM

oil price increases soften; production continues to increase;

spending accelerates

Oil prices rise for whatever

reason

PEAK

oil prices decline, spending peaks and declines;

as production increases softens

BUST

oil prices decline, spending declines; eventually production falls until,…

Oil prices rise for whatever

reason

Oil Prices

E&P Spending

Oil Production

Price increases by oil service companies slow overall spending

Industry Challenges

23

1.191.191.241.43

1.882.132.03

2.21

3.093.52

2.332.162.26

3.66

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1999 2000 2001 2002 2003 2004 20050

500

1000

1500

2000

2500

3000

Total Recordable Incident Rates1998 to 2005 YTD

Inci

dent

s Pe

r 200

,000

Man

hour

s

Rig

Cou

nt

2005 TRIR GOAL: < 0.9TRIR –Total Recordable Incident Rate

IADC TRIRRig Count

Industry Challenges

24

Government Regulations“The costs incurred by oil and natural gas companies to conform to and comply with government regulations, including environmental regulations, may limit the quantity of oil and natural gas that may be economically produced.”

Industry Challenges

25

Supply Disruptions

Hurricanes

Chavez

Strikes

Strikes

Violence

Taxes

“The loss of production, the inability to export and/or delay of activity from key oil exporting countries, including but not limited to, Iraq, Saudi Arabia and other Middle Eastern countries, Nigeria, Norway, Russia and Venezuela, due to political instability, civil unrest, labor issues or military activity. In addition,adverse weather such as hurricanescould impact production facilities,causing supplydisruptions.”

Industry Challenges

26

Weather

-200

-150

-100

-50

0

10/0

4

11/0

4

12/0

4

1/05

2/05

3/05

4/05

0

50

100

150

200

4/04

5/04

6/04

7/04

8/04

9/04

10/0

4

Heating Degree Days

Cooling Degree Days

Hurricane Ivan

Source: NOAA, www.wunderground.com

“The impact of variations in temperatures as compared with normal weather patterns and the related effect on demand for oil and natural gas. A key measure of the impact of weather on energy demand is population–weighted heating and cooling degree daysas reported by the U.S. Department of Energy andforecasts of warmer thannormal or cooler than normal temperatures. Weather can also impactproduction, for example,in the North Sea, the Gulfof Mexico and Canada.”

Industry Challenges

27

Ability to Produce Natural GasThe amount of natural gas that can be produced is a function of the number and productivity of new wells drilled, completed and connected to pipelines as well as the rate of production and resulting depletion of existing wells. Advanced technologies, such as horizontal drilling, improve total recovery but also result in a more rapid production decline. Key measures include government and private surveys of natural gas production, company reported production, estimates of reservoir depletion rates and drilling and completion activity.

Power Generation

Heating

Industrial

Other

1980

2010

2020

2030

1990

2000

450

400

350

300

250

200

150

100

50

0

bcm

Industry Challenges

28

Average Land Rig Day Rate

Source: JP Morgan, The Land Rig Newsletter

Industry Challenges

29

Service Company Challenges

30

Return on Investment

• Increases in raw material costs

• Increased pressure on salaries and wages for employees

• Improved shareholder returns demanded by the marketplace

• Higher commodity prices pressure our shipping/transportation costs

• Service companies continue to add value with large investments in new technology. Historically have not realized equivalent incremental revenue opportunities.

Service Company Challenges

31

Steel Prices

$0

$100

$200

$300

$400

$500

$600

$700Ja

n-03

Feb-

03

Mar

-03

Apr

-03

May

-03

Jun-

03

Jul-0

3

Aug

-03

Sep

-03

Oct

-03

Nov

-03

Dec

-03

Jan-

04

Feb-

04

Mar

-04

Apr

-04

May

-04

Jun-

04

Jul-0

4

Aug

-04

Sep

-04

Oct

-04

Nov

-04

Dec

-04

Jan-

05

Feb-

05

Mar

-05

USD

/ To

n

Source: MEPS

Service Company Challenges

32

Raw Material Price IncreasesExample for Chemical Supplier

Q3-Q4 ∆Cumm. Q1-Q4

Q1 2005 Proj.

Market Q3-Q4

Cumm. Market Q1-Q4

Market Q1 2005

ProjSolvent 14 -10.9% 31.1% -10.2% 5.6% 59.5% 0.0%MEA 14.3% 52.4% 15.6% 14.3% 52.4% 15.6%Phos Acid 70% 0.0% 33.4% 4.0% 0.0% 65.0% 8.0%IPA 9.3% 39.4% 29.6% 24.7% 101.2% 9.0%Aromatic 150 0.0% 27.7% -7.7% 7.0% 48.8% 0.0%Aliphatic Solvent 0.0% 28.2% 11.8% 0.0% 27.5% 23.5%Ethylene Glycol 10.4% 29.3% 9.4% 38.1% 69.0% 3.4%Ethylene Oxide 0.0% 5.2% 12.3% 3.2% 2.8% 8.3%Xylene 6.3% 22.5% 8.8% 3.4% 39.0% 17.9%Nonyl Phenol 8.1% 24.1% 15.7% 16.2% 50.5% 10.0%Propylene Oxide 1.9% 8.3% 9.6% 14.5% 31.3% 0.0%Propylene 6.9% 26.4% 18.7% 16.7% 47.4% 14.3%Ethylene 4.8% 13.0% 13.8% 23.4% 22.2% 30.3%

Service Company Challenges

33

0

50

100

150

200

250

300

OFS

Gro

up

Roy

al D

utch

/ Sh

ell

Tota

lFin

aElf

BP

Exxo

nMob

il

Che

vron

Texa

co

Con

ocoP

hilli

ps

Rep

sol

ENI 0

50

100

150

200

250

300

350

Exxo

nMob

il

BP

Tota

lFin

aElf

Roy

al D

utch

/ Sh

ell

Che

vron

Texa

co

OFS

Gro

up

Con

ocoP

hilli

ps

Rep

sol

ENI 0

5

10

15

20

25

Exxo

nMob

il

BP

Tota

lFin

aElf

Che

vron

Texa

co

Roy

al D

utch

/ Sh

ell

Con

ocoP

hilli

ps

OFS

Gro

up

Rep

sol

ENI

Employees (thousands)

Market Value ($ billions)

2004 Earnings ($ billions)

Stats Relative to our Customers’

Oil Field Services Group Includes: HAL, SLB, BHI, WFT, SII, BJS,Oil Field Services Group Includes: HAL, SLB, BHI, WFT, SII, BJS, VRC, FTI, CAM, NOI, GRPVRC, FTI, CAM, NOI, GRP

Service Company Challenges

34

Oilfield Returns (EVA 95-04)

-10%

-5%

0%

5%

10%

-10%

-5%

0%

5%

10%

-10%

-5%

0%

5%

10%

-10%

-5%

0%

5%

10%

Baker Hughes

Weatherford

Schlumberger

Halliburton

Source: JP Morgan

Service Company Challenges

35

Relative R&D Spend

01020

3040506070

8090

100

1990 1995 2000

Service Cos. Oil Cos.

Source: Hart’s E&P, Schlumberger

Service Company Challenges

36

Investment in Technology

0

250

500

750

1,000

1,250

2001 2002 2003 2004

($ M

illio

ns)

Note: Research & Engineering spending or Research & Development spending as disclosedby each company .(BHI, SLB, HAL, SII, WFT)

Service Company Challenges

37

Value Response Through Technology

38

TechnologyProject

UK Offshore, July 2004Problem/Objective

Unswept heavy oil target directly beneath platform

SolutionAutoTrak G3.0 systemCoPilot

ResultsHighly complex well drilled as required and delivered on plan

Technology

39

TechnologyLocation

Sakhalin IslandProblem / Objective

Drill world class extended reach wellsSolution

AutoTrak G3.0, APLS

Technology

ResultsIndustry’s 4th & 6th longest ERD wellsObtained continuous log through each well

Exceptional MWD decoding Excellent acoustic LWD data on Chayvo 4

40

LocationEastern Canada

Problem / Objective Maximize ROP through the intermediate section of the well

Eliminate trips between depth in and droppoint in the directional plan

SolutionHCC’s Genesis bit & INTEQ’s X-Trememotor

ResultsBHI set field records for single run length & rate of penetration.

Saved over four days rig time.Reduced cost / meter by over 50%,Saved C$1.6 million in drilling costs.

Technology

Technology

41

TechnologyLocation

North Sea

Problem / ObjectiveScale deposition in well required squeeze treatment every 10 days.

SolutionExtend time between squeeze treatments to reduce costs and increase production

ResultsTreatment with an SCW83263 scale inhibitor lasts 20 days,

Cost savings: $1 million/year Incremental production: $2 million/year

Technology

42

Moving forward in 2005 and Beyond• Energy markets will continue to be unpredictable• Domestic/Regional markets will be impacted by global events.

• Communication - service companies and operators must work together on issues. Service companies must have visibility of projects / expectations to balance supply and demand of equipment and services

• Technology - service companies need to understand key R&D requirements for future improvements to be made. However, operators must recognize that service companies need to obtain a fair return for the value and technology they provide.

• Procurement programs– Service companies are taking more risk and delivering increased product/process

performance. Financial return must be commensurate with exposure.– Raw material costs are increasing for the service companies – must be addressed

through price.• Service companies will continue to exhibit capital discipline - capacity

utilization will remain high– Financial community expects service companies to earn appropriate return on

capital