Halliburton’s strategy: Controlling risk exposure and increasing market share

Halliburton, the world’s second largest oilfield services company, is trying not to expose itself to any more risks than it needs to while striving to come out with as much market share as possible, a Halliburton senior manager said.

Reducing capital expenditure and investing in greater industry consolidation are to be expected in a price slump. But in a low-price, high-cost environment – which looks set to continue through to 2016 – oilfield services provider Halliburton is taking a multi-pronged approach of cost reductions, greater efficiency and risk minimization in its offshore operations in the Gulf of Mexico and beyond.

Slashing costs

The drilling activity in the Gulf of Mexico has slowed, prompting the company to cut costs and seek higher operational efficiency offshore, a senior manager at Halliburton told Upstream Intelligence, asking not to be named.

“Everybody in the industry has pretty much been tacked with 15-20% that you can do without – whether that comes from your budget, personnel layoffs, what have you,” he says.

Though it saw higher-than-expected profit in the fourth quarter of 2014, in early February Halliburton announced it is slashing between 6.5% and 8.5% of its global workforce, or 5,000 to 6,500 people, in response to the falling oil prices and the resulting decline in oil and gas exploration and production.

“Our shelf work, or the work on the continental shelf, less than 500 feet, has just about all but dried up,” the Halliburon senior manager says.

The company is currently working a total of six drilling rigs on the continental shelf in the Gulf, compared with 19 in 2014.

Meanwhile, the overall rig utilization rate of competitive rigs in the Gulf of Mexico in the second half of February is 70%, compared with 73.7% a year ago and 80% six months ago, according to Rigzone.

Deepwater drilling has fared slightly better, according to the Halliburton manager, but he is beginning to see a trend with drilling rigs, including large ultra-deep drill ships, that are coming out from under contract and are not resigned as fast as usual. Service companies are cutting down on spending on new technology.

“When things were busy and rigs were going at a premium price, the intervention boat was very much a workable solution for the simple fact that it was economical for an operator and the waiting list for a drill ship was quite lengthy,” he says. “With the market moving in the current direction, I think it’s completely the opposite, especially with the new-built intervention boats.”

The average day rates of drillships in the Gulf of Mexico currently range between $257,000 for drillships < 4000' WD, $521,00 for drillships 4000'+ WD and $178,000 for jackups IC 300'+ WD, according to RigLogix’s database. Smaller semis that are coming under contract work for around $30,000, the Halliburon senior manager says.

Efficiency gains

Before the current price slump, operators and services companies were rarely hard pressed to embed efficiencies. Optimizing operations is key to keeping marginal profits from plummeting in the volatile price climate.

According to the Halliburton senior manager Upstream Intelligence spoke with, there is wiggle room for companies to optimize production and reduce costs by simply improving their day-to-day operational processes. Senior executives at oil and gas operators, contractors and drilling companies are now focused on reducing non-productive time and eliminating poor quality work.

“[Companies have] to accept a little bit of risk to be more efficient. And I am not talking about safety or putting someone’s life in danger, I am talking about efficiently as far as if this hole is safe,” he says.

“Can we drill [the hole] in 85 [instead of 90 days] more efficiently? Well, certainly, we can. That is the risk that I think everyone is weighing right now. And I think they are being driven on from their vice presidential level – do what you do, do a good job of it and manage it correctly. If it’s managed correctly, then the risk will really be negligible.”

Controlling risk

To weather the price slump, Halliburton is also trying to minimize its exposure to asset risks, he says. That means ensuring that its new, existing and planned drill ships, jackups and semis in the Gulf of Mexico and around the world will be operational.

“That’s a huge investment –$4-5 million – to not have any return on for a year to two years,” he adds.

“We are trying to figure what assets we have where, and we are not going to expose ourselves to any more risk than we have to. But at the end of this deal, we’d like to come out with as much market share as we are capable of doing."

With 90% of oil and gas operators in the Gulf of Mexico asking service companies for concessions, service providers have little option but to give in to the new terms to stay competitive, the Halliburton senior manager says. The “trick” to maximize one’s market share, according to him, is to be able to bounce back quickly when oil prices recover.

“Everybody is positioning themselves as far as market share of being in a very good commanding place when things do get busy or get better to be in a good place to bring their prices back up," he says. "And as long as they’ve got a sustainable amount of market share, their earnings should come right back with it.”

By Nadya Ivanova