Thoroughly satisfied with her recent assignment as a global manager for development and “subsea”, Martha Salia gladly took part in a recent career video that aired. She has a technology degree from Colorado School of Mines, after graduation she went to work for Halliburton in her home country Venezuela. Martha is an excellent example of the type of motivated employee that Halliburton attracts. She says she is excited to work with a diverse group of people from all over the world at Halliburton and she enjoys her technical challenges at Halliburton and working with a global team. Martha’s generation has witnessed a combination of economic and political events that have prompted significant rise in oil prices and the way firms manage oil extraction and distribution.(Halliburton Career Story)
Halliburton, one of the world’s largest providers of products and services to the energy industry, operates in an incredibly competitive industry, subject to shifting relationships with governments and regulators as well as with national oil companies, rapidly changing technologies, unpredictable price changes, and dynamic market demands. As global oil reserve locations, extractions, and other complexities intensify, Halliburton must collaborate effectively to leverage and develop its core competencies, distributing risk across multiple contractors. It intends to address present and future challenges and opportunities by employing four key strategic imperatives:
1) Leading in Unconventional Plays
2) Making Deepwater Advancements
3) Maximizing the Mature Field Performance
4) Building Relationships, Delivering Results
(Halliburton Annual Report 2011)
Halliburton took initial steps to become a global company in 1920s and with tremendous growth in the industry after the turn of the century and center of gravity shifting eastward, Halliburton recognized that strategically managing coordinated global operations could become a competitive advantage organizationally and relocated the CEO office and several executive functions from Houston, TX, USA to Dubai, UAE. Because operational concentration within the Middle East emerged as a significant component of Halliburton’s business, executive presence throughout the region allowed for limited risk of declining sensitivity to local issues and disjointed strategic deployment of resources. Maintaining a continued large presence in Texas allowed Halliburton to remain sensitive to the western world’s market and consumer demand. This organizational structure strategically addressed closer management of subsidiary offices throughout the world from a sort of dual headquarter model.
Halliburton’s response to rapidly changing technologies
With competitors like Transocean and Schlumberger closing the gap swiftly, there is enormous pressure for Halliburton to rapidly improve its drilling technology, the productivity level of workers with efficient use of control mechanisms, and knowledge in its long list of more than 140 subsidiaries.
Halliburton’s website is loaded with information touting their latest technological advancements. Setting a cooperative and inclusive direction to, followed by cautious and responsible implementation of subsidiary differentiation, and playing an adaptive referee role with each category of subsidiaries to take advantage of diverse customer, regulatory and competitive stimuli, Halliburton has shown it can lead to an exploitable electric entrepreneurial climate inside national subsidiaries.
The latest HYDRO-GUARD System employed by HAL Mboundi field in the Republic of Congo helped the operator reduce drilling time and mud costs.
Baker Hughes deployed an automated directional drilling assembly on a well in Canada. The rise of horizontal drilling in North American onshore drilling has prompted more operators to consider using rotary steerable despite their higher unit cost. In response, HAL has used Optimized Steering Solutions for Maximum Reservoir Exposure in South East Asia. (Hsieh) Another example of a technological advantage is the 325 Filter Cake Breaker systems from HAL, used in oil fields of Kazakhstan lead to increased performance and production rate. HAL also engineered Baroid fluid systems to help Saudi’s Aramco.
To manage the extremely competitive nature of industry, Halliburton deep-water completion division forged a productive collaboration effort with a competitor, BP Exploration, which was a major victory with a record-breaking well production and an economic value of $33 million (Halliburton Case Studies). The financial success of this venture served to strengthen both Halliburton and BP’s competitive position within the industry and proved mutual beneficial to both competitors.
Halliburton’s response unpredictable price changes:
The North American (which represents HAL’s 50% revenue base) market has expanded to two chief commodities, oil and natural gas, for the first time in well over a decade. Historically oil has been the primary driver, however during the last few cycles natural gas is the primary sole driver of activity. It is important to note that oil and gas have fundamentally different drivers. Because of the low correlation between the two commodities, HAL’s customers have developed balanced portfolios that allow them to shift activity as needed.
HAL’s customers have broad access to the capital markets with record low interest rates. In the previous cycle, constrained capital halted investment and this in turn caused the abrupt reduction in activity levels, causing wide swings in product prices.
Through an active customer acquisition strategy, Halliburton’s customer mix weighs heavily towards larger customers who have more stable activity levels and are not as vulnerable to short-term fluctuations in commodity prices. HAL expects this strategy will help temper any impact of a potential slowdown to our business.
The contract structures in North America look more and more like those of the international markets. In the past, the majority of North American contracts were pricing agreements without volume commitments. The nature of the business has changed to the point where equipment and services agreements blend with long-term utilization contracts. As a result, the majority of the existing frac crews have contracts with clauses that govern minimum volume or efficiency commitments through the duration, and virtually all of the new fleets have similar contracts. HAL is currently engaged in discussions with some customers about a new type of contract that gives them more flexibility but assures us of a contracted volume of work and efficiency level.
Finally, there is still a significant shortage of capacity for equipment in the market today due to the continued increase in rigs that, weighting the demand distribution towards the service-intensive, oil-directed activity. Because HAL builds its own equipment, it is less susceptible to regional declines in activity due to these shortages. (Lesar)
Halliburton’s response to dynamic market demands:
Halliburton has been building Supplier Competencies for Globalization. The supplier diversity focus has been trying to create mutually beneficial business relationships that deliver value to the company and its customers. Supplier diversity is a proactive business process, which seeks to diversify HAL’s supplier base, expand business opportunities, and develop a supply chain that reflects the diversity of the communities and countries where they work. To support and encourage the development of diverse suppliers who have global capabilities or the potential to be a global provider, the company introduced the BEST program in late 2006. BEST—Business Education and Supplier Transformation—is a program intended to foster closer relationships with diverse suppliers that will play a key role in Halliburton’s future. (Len Cooper, VP)
In order to better cater to the rising demand and market growth potential, in September 2010, Halliburton acquired Boots & Coots, Inc., creating the industry’s premier intervention services and pressure-control service line. Boots & Coots was the premier pressure-control management company in the industry, largely focusing its efforts on emerging Middle Eastern markets. The merger combined Halliburton’s coiled tubing and hydraulic work-over operations with Boots & Coots’ well intervention services, providing operators with a more comprehensive production services portfolio.(Halliburton 2010 Press Release)
In response to structural reforms in Schlumberger and Baker Huges, Halliburton announced the acquisition of Multichem group in October of 2011. Halliburton benefitted from the company’s product portfolio that includes biocides, viscosity reducers, and wetting agents. Halliburton, as part of its integrated services offering, plugged a vital gap in its offering with the Multi-Chem acquisition. Multi-Chem is the fourth largest production chemicals company with around 750 customers and provides customized solutions for oilfield products, gas well treatments and pipelines. (Forbes)
How does HAL manage the National Oil Companies
As Halliburton continues to pursue growth and increasing market share as it expands globally, it must adapt to new business environments and develop key relationships that it was not have otherwise have done had it maintained a home market focused strategy.
As an illustration of application of this strategy, Halliburton intends to “to maintain leadership in unconventional plays” with its recent collaboration with Malaysian company Petronas. HAL wants to expand into the Asia Pacific market and providing the same quality level of service they already provide in North America” (Halliburton February 2012 Press Release). Following GE’s example in Bangalore, India HAL foresaw an opportunity to improve Petronas’ internal capabilities by setting up a Shale Technical Centre of Excellence in Kuala Lumpur, Malaysia. Halliburton employed this same strategy in Brazil with the establishment of another technology center in Rio de Janeiro with the Universidad Federal do Rio de Janeiro. This center exists to enable Halliburton to break into the Brazilian oil market and develop future relationships with Brazilian semi-national oil company Petrobras, among others, and thus ensure long and lasting collaboration relationships with these countries and their associated oil industries. (Halliburton August 2011 Press Release)
This strategy is overall, a win-win for Halliburton and the national oil companies it both hopes to collaborate with and to whom they would like to provide business services. Michael Porter would most certainly support this type of strategy fitting as it fits with the idea of engaging in strategic corporate social responsibility by assisting in the maturation of these markets and the economic well-being the communities in which these centers reside. This approach also enables these communities to develop related and supporting industries, which will establish long-term relationships with these governments, companies, and people, and enable Halliburton to pursue long-term global growth.
Based on the information above, it is clear that Halliburton is in a maturing stage of global growth. They are actively pursuing a diverse portfolio of capabilities across the lifecycle of an oil field, from location and exploration to capabilities that will maximize mature field performance. Additionally, they are addressing the strong current and future market pressures and dynamism with application of this capability portfolio as well as expanding into untraditional relationships with foreign governments as well as their respective national oil companies or in country partners of opportunity. By establishing Centers of Excellence and Technology Centers, Halliburton intends to shape these relationships for future talent pools but also bolster these foreign relationships with the win-win strategy of improving the related and supporting industries of these nations and thus improving their standard of living as well. While Halliburton has had a few high profile missteps in its expansion strategy, they are quickly adapting and improving to overcome them and improve their brand image.
Martha Salia can be confident that she will continue to have tremendous opportunities with Halliburton as the firm continues pursue a cohesive and results driven strategy to address the strategic issues they face. Moreover, given the results of their 2011 year, they seem to be on the right path for longevity and competitiveness in the high stakes, dynamic market of petroleum products and services.
Contributors: Brian Dwyer, Brian Gatti, Karthik N. Govinahalli, John Nuclo, and David Prestin
Forbes. Multi-Chem Acquisition Helps Halliburton Stock Hit $60. 13 September 2011. 15 April 2012 .
Halliburton 2010 Press Release. 15 April 2012 .
Halliburton Annual Report 2011. 2011. 15 April 2012 .
Halliburton August 2011 Press Release. 15 April 2012 .
Halliburton Career Story. Martha’s Career Story. 15 April 2012 .
Halliburton Case Studies. Production Enhancement. 15 April 2012 .
Halliburton February 2012 Press Release. 15 April 2012 .
Hsieh, Linda. Rotary steerables: Cost, reliability still key; higher dogleg capability, downhole motor integration also on asking list. 23 March 2010. 15 April 2012 .
Len Cooper, VP. “Supplying Halliburton.” Profiles in Diversity Journal (2007): 23-33.
Lesar, David J. Halliburton’s CEO Discusses Q3 2011 Results – Earnings Call Transcript Kelly Youngblood. 17 October 2012.