Halliburton’s Miller sees optimistic path for upstream industry
Interview with JEFF MILLER, Chairman, President and CEO, Halliburton Company
Back in May 2017, Jeff Miller became President and CEO of Halliburton Company, just as the global upstream industry was beginning to climb out of the 2014-2016 slowdown. Shortly thereafter, World Oil conducted an interview with Mr. Miller, to discuss his priorities for Halliburton and what he expected for the industry in the next few years. In 2019, as the upstream sector continued to improve, Mr. Miller was awarded the additional title of chairman of Halliburton. Little did anyone know that the industry would soon be put to the test further by a variety of factors in the 2020-2022 period.
Now, five years later, Halliburton and the industry have weathered the Covid pandemic, dealt with a global hydrocarbon market skewed by the Russia-Ukraine war, and devised ways to make oil and gas a cleaner endeavor. So, at this point, with the industry set to enjoy a period of greater activity, it seems like a good time to get a fresh assessment from Halliburton’s head man. Accordingly, Editor-in-Chief Kurt Abraham and Technical Editor Craig Fleming sat down with Mr. Miller to hear his experiences of the last five years, discuss his plans and expectations for Halliburton’s future, and gain his assessment of the industry’s condition.
World Oil (WO): When we last talked to you, Jeff, in a formal setting five years ago, you had just taken over the helm of Halliburton. Since then, a lot has happened. What are some of the more memorable moments of your tenure so far?
Jeff Miller (JM): I’d have to say that a memorable moment was celebrating the 100-year anniversary of Halliburton in 2019. That was an exciting time. But I’d say it’s been a pretty tough last five years, in terms of the market and related things. I think one of the highlights of the last three to five years has been the resilience of the people at Halliburton. Just an incredible, competitive spirit, and their ability to weather everything that comes our way and prevail. That’s really been exciting for me. It’s not been fun, by any means, but in terms of the strength of the company and the people here, it’s really been a marvel to be part of that.
It’s also been exciting to watch the next “up” cycle take hold, which I think we’re in the middle of now. And, in some ways, predictions of the future come to fruition, in the sense that oil and gas, and energy security, would both be very important to everyone, and we’re seeing that unfold today. The last point that I would like to make on the last five years is it’s been really quite the technical journey. We delivered more technology in 2020, in spite of the pandemic, with the introduction of iCruise and so many other breakthrough technologies. That’s always very exciting for me to see.
WO: How did the Covid-19 pandemic alter the way that your company does business, and are some of those changes permanent?
JM: We used the pandemic to redesign the cost profile of our business. We structurally removed over $1 billion of cost. It was one of the most aggressive cost reductions in our history. It was done very much from a value stream point of view by changing what we’re doing, changing the way we work, in an effort to make those cost reductions sustainable, as opposed to costs we would have to add back later. So, we’re seeing the benefit of that better operating leverage right now, in our own performance.
The second thing we did was to fundamentally lower the capital intensity of our business. This is really very much a technology story, because the types of cost that we took out have been in the making for a number of years. And that’s true, whether it’s better design, longer-lasting equipment that costs less to manufacture, it’s got better asset velocity, and our whole approach to drilling reflects that. We see the benefits of that. And that was born out of, or became more apparent, as we went through Covid. A lot of that technology was just coming to market. We did remove a lot of jobs, unfortunately. That’s the part of my role that I like the least. It’s just disappointing, and many of those jobs won’t return, because of the approach we’ve taken on how we work. We’ve also seen, as I’ve said, technologies that automate operations, that reduce costs and people requirements. And I think we have a safer workplace, with more reliable output and lower costs.
WO: Are there some specific areas of the world that you are focusing on? Is there still an emphasis on North America, the Middle East and Eurasia? Is that mix still the same, or have there been some changes?
JM: Well, Kurt, we’re really focused on the whole world today. We’re 50% U.S., 50% international. So, I say that to emphasize what a big and important international franchise we have. We see activity and demand for services increasing both internationally and in North America. And it’s happening simultaneously, for the first time in many years. That’s encouraging.
The North America market remains very strong, steadily growing and all but sold out. I think one of the unique elements here is that Halliburton is the only integrated services company still active in all major segments of North America, the largest services market in the world. Short answer, we’re still in the frac business, and we like the fracing business, Fig. 1. So, as we look at North America, what’s changed is that our strategic priority is to maximize value in North America by focusing on cash flow and returns, as opposed to all-out market share, which is what we probably would have talked about ten years ago.
I think the other key element internationally is that the security of energy is firmly in focus. And we’re watching countries the world over diversifying their supply sources. What we’re seeing, and will continue to see, are international markets experiencing multiple years of growth, probably led by the Middle East and Latin America. I think we’re better prepared to benefit from the upcycle than ever before. We’ve got a strong portfolio of well construction and completion product service lines. Obviously, we’ve taken significant steps with respect to the competitiveness of our drilling offerings, and we’re present in all the markets that matter. I think we’ve got unique growth opportunities in the production part of the business—which is one that we didn’t have in the last cycle—whether that’s Summit ESP or what we’re doing with multi-chem production chemicals.
WO: At one time, there was an effort to satisfy a Saudi desire to manufacture more oilfield products in that country. And it appears they partnered with quite a few service providers to develop unique and individual tools. We’re wondering, how has that progressed with Halliburton?
JM: It’s a lot of progress there. We opened our Halliburton chemical reaction plant in March, Fig. 2. It’s the first oil field specialty chemical manufacturing reaction facility in Saudi Arabia, which is very exciting for us. Obviously, that facility accelerates the production of next-generation specialty chemical solutions and supports in kingdom innovation. And that will also be our launch pad for specialty chemicals in the Middle East and beyond.
As you may know, we have 12 technology centers throughout the world, including in the U.S.; Brazil; Pune, India; Singapore; and also Dhahran, Saudi Arabia. Across the globe, our regional technology centers dramatically improve our responsiveness to challenges and opportunities with our customers. They are specialized collaboration facilities, so engineers can develop solutions along with our customers, and they can do that around the globe in real time.
WO: Moving back over to North America, as the U.S. rig count continues to recover, and drilling edges up incrementally, how is that affecting the pricing for pressure pumping and other services?
JM: Well, clearly, it’s increasing pricing. I would say the tightness in the markets is driving improved pricing, as is the technology that we’re going to market with. Experienced crews and active equipment are in high demand, meaning that hot crews are in high demand, and they’ll continue to be sought after. That’s what we’re seeing in the second half of this year and clearly into 2023. The market remains all but sold-out. Our supply chain bottlenecks become more impactful.
We are even seeing diesel fleets, for example, in short supply. Adding incremental capacity is very difficult, given lead times. Fortunately, Halliburton has the additional advantage that our fleet competes primarily at the higher end of the pricing spectrum. We’ve got a great portfolio of low-emissions equipment, and that commands premium prices. Our customers see value in the efficiency and the emissions profiles that we are able to provide.
WO: Five years ago, 900 rigs were considered the new “2,000,” in terms of ability to drill faster, deeper and more efficiently. Bringing that forward, how do you view the current 750 rigs, in terms of equating to previous rig levels needed to sustain U.S. drilling?
JM: Well, pressure pumping was the first service line to grow in 2021. And now what we are seeing is a lot of drilling catching up, building DUCs for 2023. So, we basically fraced most of the DUCs in 2021, and it makes sense that we’d see a lot of drilling activity to follow that. Even as the rig count grows, I believe that super-spec rigs are supply-limited. But, if you just look at activity this year, we’ve gone from a 475-rig average in ’21, and now we’re at 760. That would mean we’re up 60%, if we were to stop adding rigs today. That’s a meaningful step up. Obviously, efficiencies in the form of lateral lengths continue to increase. But I really don’t believe we’re in a situation where we will need the number of rigs today that we had in the past, as a result of efficiencies.
WO: But that makes us think about another thing we’re curious about, given what has happened in the last couple of years with the pandemic. We’re wondering how hard it is to bring back people to not only run the equipment, but also to fulfill a lot of other roles
JM: Well, we’re very fortunate that we can hire all around the world, and the pipeline remains strong. We have a world-class H.R. organization, and they’ve successfully managed many cycles. We’ve got strong relationships with universities and the military branches. They’ve allowed us to continue to engage the hiring market, to build awareness for Halliburton and stay connected. I think we provide valuable career and training opportunities, and the chance to contribute to an industry that is more than essential. It really is the basic building block of quality of life for people all around the world.
WO: We’re hearing a lot of reports about shortages of a number of key oilfield supplies and equipment, such as OCTGs, other steel items, sand, chemicals, land rigs and other equipment. In your opinion, how bad is the problem?
JM: The situation from our perspective is a little bit fluid. The challenges and problems get better over time. We do run into supply shortages across various categories. We’ve been successful, though, largely by sourcing through alternative providers or substituting technologies and leveraging strategic relationships that allow us to ensure we have what we need to execute for our customers. It costs more, and it takes longer, but generally things are available.
Our operations and BD teams are doing a good job working with our customers, in an effort to plan further ahead to manage lead times and account for backlogs and supply, and manage what is really a longer, more extended logistics process—just the time to get from A to B. But, we are very fortunate. We have a sophisticated supply chain organization, and we work all around the world. That group outperforms, and it’s important that those costs get passed along. We’re not in a position to subsidize operations for anyone today. Everything takes longer, so planning matters. And in many cases, that supply chain organization is creating opportunities for Halliburton.
WO: Turning to the global offshore market, it seems to be recovering more slowly than onshore areas, particularly in the U.S. Gulf of Mexico. What is your outlook for offshore regions?
JM: Well, I agree with you that the offshore recovers but probably more slowly. And what we’re seeing, early days at least, is that the majority of offshore projects are a shorter cycle. By that, I mean development activity over exploration, tie-backs versus new infrastructure, and more. It’s a matter of getting to work quickly and producing barrels more quickly. We see that in Norway, the Middle East and the Gulf of Mexico to a large extent. I realize there are follow-on projects being planned, but that planning takes time; the execution takes time. And that’s more the source of why does the offshore recover more slowly. The work that can be done quickly is being done. The longer-term projects require a lot of planning, and that will take a bit more time. We are involved in ongoing offshore exploration projects in Guyana, Brazil and West Africa, but clearly those are fewer in number than they were in any other prior cycle.
WO: We’ve seen a lot of development in offshore technology, as far as electrification of the topside free environment. That would seem to be a real area of market growth for service providers. What’s your feeling on that?
JM: I think automation and digital, broadly on surface, are going to be impactful, both in terms of safety and efficiency. I also believe electrification will be impactful, as it really gets put to work, whether it’s more complex systems, completions, etc. There’s a lot to be done in that area, and we’ve done quite a bit around it already. It’s really encouraging from my perspective, because I think it’s going to reduce the numbers of people offshore, which has always been one of the challenges and also improve reliability, as we get better and more comfortable with it. Most of those jobs are done remotely today, and we’ll continue to see those opportunities. They’ll probably be more impactful offshore over time.
WO: How would you describe Halliburton’s technical and R&D priorities?
JM: I would start with capital velocity, and you say, “why that?” But before I get to specific areas of emphasis, whether that’s drilling, technology, different measurements and sensors, or what we’re doing with fracing onshore, I think the idea of capital intensity is very important in capital velocity and as a result of a number of years of investment. Today, we have a business that is less capital-intensive than it was in prior cycles, and that will serve us well as a company, most certainly. It will also help our customers, because the extent to which we are able to be more nimble at a lower cost, that helps them be more efficient.
Also, when I think about where we spend our time, you know, we’re in a place where we can find more barrels for our customers at lower costs. I was pleased to see where the overall break-even cost is at. Call it an inflation-adjusted break-even cost for oil and gas that continues to come down. That’s separate and apart from what you see, when the price of oil gets into a lot of other dynamics.
The efficiency in our industry continues to march forward, whether in some cases, it’s finding more barrels, or sometimes it’s doing an activity more quickly, and in many cases it’s both. Onshore, we’re drilling three times faster and producing three or four times more oil from every wellbore. Just in a decade, we’ve seen similar kinds of performance offshore, whether it’s rig technology or drilling technology. Some of these things are centered around our EarthStar 3D Ultra-deep Resistivity Service, Fig. 3. All of those things do a lot. We think about all of our technology today as a platform. So, we’re not really designing single products, we’re designing platforms with products to tap into them.
As a result, that allows us to be a lot more efficient in our development of technology. It takes a little more up-front planning, but it’s really helped serve us, and we work closely with suppliers and start-ups and universities, and lots of others, in an effort to bring all that together. And fortunately, from a patent-granting standpoint, Halliburton’s been leading by quite a bit for several years now. So, that really speaks to our disciplined, efficient approach to product design and development that we have here at Halliburton.
WO: Do you see global supplies for oil and gas remaining out of balance with demand through 2022 and into the first half of 23? And what is your take on who will have the ability to increase production enough to satisfy demand during that timeframe?
JM: The answer to your first question is yes, we’re short on oil for some time. And the timeframe you laid out for the rest of 2022 and into the first half of 2023 is just the beginning. I don’t think prices are necessarily elevated—that’s just how scarce resources are allocated. I don’t know what the right price for a barrel of oil should be. I’ll leave that to your economist.
But I think the fundamentals today really support a multi-year energy up cycle. What’s most important is there is no quick solution. What’s the solution that provides more oil? All of them take time. All of them take more than a couple of quarters. They take five years, just to put into flight. So, I think we’re at a point in time where the industry has suffered eight years of underinvestment, and that can only be overcome with some period of time of overinvestment, which I think is longer rather than shorter.
From a demand standpoint, oil and gas clearly is critical to everything about our way of life and post-pandemic economic expansion. In spite of recession fears, demand is still growing, and I expect that it continues to grow. Energy security is a whole topic that seemed to have gone out of style, but it certainly is very important still. We also see that driving the demand for control over your own destiny. I think oil and gas supplies are tight, despite a muted environment with Chinese lockdowns, jet fuel demand being low and other factors. So, there’s demand growth to come, even without a lot of economic expansion.
And then things like tapping the Strategic Petroleum Reserve to release oil is simply not sustainable. That’s not real production. I do think risk to Russia’s supplies probably remains high. But from an industry perspective, we still have oil and gas operators being very careful with their capital in their growth plans. Service companies are behaving the same way— investing for returns, not overbuilding. We’re certainly not overbuilding. And so, this has really been a cycle like no cycle in the past, but it’s one that’s certainly exciting. I think it will be good for our employees, and our shareholders and technologists, and all the rest for some time to come.
WO: We have to agree with you completely on the SPR. We always thought the SPR was supposed to be for a real emergency, but we’re not sure that it’s fitting that definition at the moment.
JM: Yeah, no, I understand. I think we’re coming back into sort of a more rational approach. I know it’s being forced on some and, hopefully, just simply adopted by others. But there’s no question that we need a lot of oil and gas for a very, very long time.
WO: Any final thoughts?
JM: I just want to make sure that I sincerely thank the men and women of Halliburton for all they do, every day, to make Halliburton a great place to work and a great company to do business with our customers. Given the level of commitment to our clients, and to each other, it’s really an extraordinary place to work. It’s something I’m very grateful for.Related Articles
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