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The world needs energy resources and commercial and industrial facilities to fulfill the needs of its communities in a safe and environmentally sound manner. Halliburton Company is dedicated to leading the way in meeting these needs through demonstrated excellence in providing a broad spectrum of services and products for finding and developing energy resources; designing, constructing, operating, and maintaining facilities; and protecting the environment. We will afford our employees opportunities to contribute to our Company's success. Through their skills and abilities, we will continuously improve the quality of services and products we supply our customers. We will provide a fair return for our shareholders and good opportunities for our business partners and suppliers, and be good citizens of our communities.
Halliburton Company is a world leader in energy services, as well as engineering and construction. The company has two main business segments: the Energy Group, which offers a broad range of services and products used in the exploration, development, and production of oil and gas; and the Engineering and Construction Group, which designs and constructs major projects, including chemical plants, refineries, and paper mills. Halliburton, which has operations in more than 100 countries, announced in early 1998 that it would merge with Dresser Industries, Inc. to create the number one energy services firm in the world.
Early History
One of Halliburton's numerous service operations is oil well cementing. This process protects oil from contamination by underground water, strengthens the walls of a well, lessens the danger of explosions from high pressure oil and gas, and protects fresh water veins from contamination by oil. It was the first service offered by company founder Erle Palmer Halliburton.
Erle Halliburton learned the cementing technique in California, during a period of employment with the Perkins Oil Well Cementing Company that began and ended in 1916. Fired for suggesting too many method changes, he decided to utilize the engineering and hydraulics he had learned in the U.S. Navy, and go into the cementing business on his own. He borrowed a pump and wagon, pawned his wife's wedding ring to finance his venture, and moved to Burkburnett, Texas, to introduce his services to the oil industry. Halliburton's method met with little interest in Texas.
Undaunted, he transferred his operation to Oklahoma. Here his luck soon changed, bringing the need for additional equipment, a patent for his process, and efficient management. To cope with these needs and increasing demands for his service, in 1920, Halliburton organized the Halliburton Oil Well Cementing Company. One year later, 17 trucks carried his crews and equipment to drilling sites in Louisiana, Arkansas, and other oil-rich areas from a base in Wilson, Oklahoma, as well as from the new company headquarters in Duncan, Oklahoma. Part of this growing reputation came from uncompromisingly reliable service, which was enhanced by new equipment invented by Halliburton to meet the needs of each project. One creation that revolutionized the oil industry was the jet mixer, a mechanized mixer that did away with hand-mixing of the minimum 250 bags of cement and water slurry needed for each well. Because it could control the proportions of cement and water, it eliminated wasted slurry that would harden before it could be poured.
By 1922 the company owned $14,000 worth of equipment and was paying some of its cementers $300 monthly. Two years later, Halliburton with his wife, Vida, as his partner, set out to expand. To finance this they converted their partnership into a corporation and offered a substantial interest in their business to other oil companies. Their trump card lay in their meticulous patenting of all new processes and devices, which had left the oil companies unable to have oil wells cemented without using Halliburton services. Company patents also covered processes designed for well recementing, a maintenance necessity that gave the Halliburtons relative independence from competitors.
In 1924 the Halliburton Oil Well Cementing Company became a corporation in Delaware. The Halliburtons held 52 percent of the stock, and the Magnolia, Texas, Gulf, Humble, Sun, Pure, and Atlantic oil companies jointly held 48 percent. So as to retain equal voting rights with their partners, the Halliburtons placed 4 percent of their stock in a voting trust.
By the time the company reached its ten-year milestone in 1929, research and development had improved processes and equipment to the point where a mixture made up of 2,500 sacks of cement could be injected into a well in 48 minutes. By 1929 the use of four new company planes made for speedy contract completion. Marking this important anniversary was the Halliburton entry into Canada, as well as offering for sale a wide range of oil well apparatus.
The 1930s saw automobile production soar from 2.3 million vehicles in 1931 to 4.5 million by 1940. Domestic oil heating became more popular, growing from 100,000 homes supplied in 1929 to 2 million by 1940. Both circumstances benefited the oil industry. As the decade ended, oil and gas were supplying 44.5 percent of the U.S. total energy requirements.
Halliburton's expansion kept pace with demand. In 1932, it opened four new branches, enabling it to send 75 cementing and well-testing crews to sites in seven states. The company introduced bulk cementing to replace hand moving of heavy cement sacks. Eager to participate in the marine oil exploration taking place in the Gulf of Mexico, Halliburton also began to mount equipment on ships and barges.
In 1940 the Halliburtons bought Perkins Cementing Company, extending operations to the West Coast and the Rocky Mountain region. In the same year, the company established its first South American subsidiary, in Venezuela. These two moves were profitable; just one year later, earnings reached $13.5 million, of which $2 million was net profit.
Soon after the Japanese attack on Pearl Harbor, the company began to make gun-mount bearings for the U.S. Navy at its Duncan shops. Other war material manufactured included parts for the B-29 bomber, and jigs, fixtures, and dies for the Boeing airplane plant in Wichita, Kansas. Wartime contracts were lucrative, and when World War II ended in 1945, annual earnings reached $25.7 million.
In 1948 Halliburton shares were offered on the New York Stock Exchange for the first time. Having split its shares on a four-to-one basis a year earlier, Halliburton was able to offer 600,000, to which the Atlantic Refining Company added a further 80,000 shares. Of these, 50,000 shares were offered to employees before the balance were offered to the public.
By the end of the 1940s, although well cementing and bulk cement sales accounted for about 70 percent of company revenues, there were other profitable undertakings, all supported by specially designed equipment. Electrical well services provided information on the types of formations penetrated by a drill; acidizing of geological formations increased oil flow; and specialized equipment deposited various cements and chemicals into wells. Most profitable of all was a new process called Hydrafrac, licensed exclusively to Halliburton for a period of time by its developer, the Stanolind Oil and Gas Company. Designed to increase well productivity, this method used jellied gasoline, which was pumped under pressure into the bottom of a well to split the rock formation. The resulting crack was then propped open with quantities of sand, making penetration of tight rock formations easier. The Hydrafrac process made it possible to rejuvenate many dwindling oil wells, and reduced the number of sites necessary to drain a field. A surge in annual revenues showed Hydrafrac's great success: $57.2 million in 1949, increasing to $69.3 million the following year, and leaping to $92.6 million by 1951.
Diversifying and Expanding in the 1950s
Between 1950 and 1955 the company expanded in all directions. Drilling activity increased dramatically. The company had 7,000 employees, and drills probed to more than 4,000 feet in an average well, as compared to 3,600 feet five years earlier. Offered for rental as well as for sale, equipment then included formation testing tools to obtain fluids and pressure readings from oil-bearing rock, plus other new equipment used in well completion operations. Wall cleaners, depth measuring equipment, and production packers were other lines that drillers could rent or buy. Services provided by the company included electronic logging and sidewall wellcoring, and the transporting of cement and fracturing sands to drilling sites from nearby Halliburton storage areas. Oil exploration in the Texas and Louisiana Gulf Coast areas was flourishing; 23 vessels as well as about $10 million worth of other equipment were available for offshore drilling purposes. There were almost 200 operating centers in the United States, as well as 32 service locations in Canada, and subsidiaries in Venezuela and Peru. The company also had operations in Mexico, Saudi Arabia, Sumatra, Italy, Germany, Australia, and Cuba.
Research and development kept the company at the forefront of oil exploration technology. Costing $3 million in 1956 alone, it rewarded the company's efforts with a new composition for cementing deep wells and a method for making the fracturing sand radioactive, among other innovations. All of this was reflected in the annual sales figures, which reached $152.4 million by the end of 1955, and produced net profits of $16.3 million.
Erle Halliburton died in 1957, after 28 years as company president and ten as chairman. Cited by the New York Times as one of the richest people in the United States, he left behind a fortune estimated at between $75 and $100 million--the days of a pawned wedding ring long gone.
The same year saw the acquisition of Welex Jet Services. Originally based in Fort Worth, Texas, Welex broadened the Halliburton line of electronic testing and logging services. Other companies were acquired during this time, including Jet Research Center and FreightMaster, a maker of rail car couplings.
The end of the war had brought an increased demand for oil. Due partly to freedom from wartime price controls and partly to the technological advancement that brought plastics, synthetic fibers, fertilizers, and other petrochemical products into daily life in the United States, these demands were willingly fed by the oil drillers. Production almost doubled between 1945 and 1954, reaching a level of 2.3 million barrels daily. Such overexpansion came to a head in 1957 when a slump followed, bringing with it a corresponding decrease in the demand for exploration equipment. The company's annual sales figures showed the trend of the time: its net income before taxes, $38 million in 1957, decreased to $27.6 million in 1958, rallied to $33.9 million the following year, only to sink once again to $26.9 million by 1960. Because Halliburton was chiefly a supplier of drilling-related services, however, recovery was relatively swift. These services, plus the equipment required to implement them, were needed both for the deeper wells then being drilled, and for stimulation of existing sites.
Acquiring Brown & Root in 1962
Offsetting the oil exploration slump, Halliburton continued with its acquisition program. Otis Engineering Corporation joined the company in 1959. Brown & Root, Inc. became a Halliburton subsidiary in 1962. A firm internationally known for the construction of military bases, petrochemical plants, and offshore platforms, Brown & Root was a private subsidiary of the Brown Foundation. Other Brown subsidiaries acquired at the same time were Southwestern Pipe, a manufacturer of explosives and thin-walled pipe; Joe B. Hughes, a trucking business; and Highlands Insurance Company, chiefly concerned with casualty insurance. Together, the four new subsidiaries broadened Halliburton's product and service lines, giving the company entry into many overseas markets and providing ways to adapt Halliburton skills to new purposes. Two company staples quickly found new uses: blended cement was now sold for building projects and thin-walled pipes for playground equipment and bicycles.
By 1965 Halliburton's acquisitions program resulted in 16 units that were autonomous but closely coordinated into three main areas. One division was oil-field services and sales. The second was the engineering segment headed by Brown & Root, the focus of which were such international construction projects as bases in Saigon and parts of NASA's Manned Spacecraft Center near Houston. The third division, specialty sales and services to general industry, included power supply units and transformers for the electronics industry, missile cleaning for defense, and, through two subsidiaries, insurance. Earnings reflected the company's steady growth. 1960's total earnings of $181.5 million rose to $525.7 million by 1965.
In the 1960s, offshore oil exploration became a major activity. Successfully undertaken in the Gulf of Mexico since 1938, offshore drilling produced about 12,500 wells by 1970, accounting for approximately 15 percent of U.S. oil and ten percent of its gas. Anticipating its participation in offshore activities, Halliburton equipped Brown & Root well, spending $100 million to ensure competitiveness. The company had developed an automated mixing system for drilling mud, used in offshore operations. Designed to cut costs by monitoring and controlling fluid density, the new system came in tandem with a 50-percent interest in IMC Drilling Mud, a company with special emphasis on overseas expansion.
In 1968 the company's marine capabilities were broadened further by the acquisition of Jackson Marine Corporation, a Texas company specializing in the construction of vessels for offshore petroleum exploration, and the purchase of an 80-percent interest in New Orleans-based Taylor Diving and Salvage Company. The latter company proved its worth within a year by developing an underwater chamber that could be lowered to depths of 600 feet, then pumped dry. It was used for the undersea repair of damaged pipes.
Offshore exploration proved lucrative, and by 1970 the company's net income reached $46.3 million, up from $33.1 million in 1965. Other profitable ventures were hydraulic cushioning for railroad cars; electronics and explosives for the defense and aerospace industries; plant and road construction; transportation; and pollution control.
Destined for permanent importance, concern for the environment had attracted national attention a year earlier, after a well eruption in California's Santa Barbara channel spilled 10,000 barrels of oil. Outrage over the resulting 200-mile-square oil slick hampered offshore exploration, as well as the construction of oil refineries--and nuclear power plants. As could be expected, oil imports rose.
Continuing to Prosper in the 1970s
Halliburton, nevertheless, prospered. Total revenues of $1 billion in 1970 grew to $2.1 billion by 1973, despite the Arab oil embargo that led to huge OPEC price increases in 1974. Acquisitions giving the company new entry into overseas markets encouraged industrial variety. The reconditioning and stimulation of older wells then became more profitable than it had ever been before, especially as the equipment the company used for its own projects was not available on the open market. Lucrative as oil-field services were, however, they were now contributing a smaller proportion to the company's total revenues. A larger part came from construction projects like steel mills, municipal construction, and paper mills.
The Halliburton corporate structure was relatively simple. In the 1970s, although the company had 55,000 employees worldwide, the Dallas headquarters housed fewer than 30 people, and day-to-day activities were handled by each segment. Operations were still divided into three main segments: oil-field services and products, producing 46 percent of 1975's total earnings; engineering and construction, contributing a 51 percent share; and specialty services and products, responsible for the remaining three percent. Each of these three groups had several internal divisions, themselves divided into several hundred profit centers run by field managers. Headquarters kept in touch with these field managers in a monthly reporting system that monitored specified financial goals.
By 1975 Halliburton had 40 subsidiaries in all parts of the world, most of which were smoothly fitted into their appropriate company segments. The exception was Ebasco Services, acquired along with Vernon Graphics from Boise Cascade in 1973. Like Brown & Root, Ebasco's main business was the engineering and construction of fossil fuel and nuclear electric power plants. Its merger led to a Justice Department antitrust suit, claiming unfair competition. Ebasco was, therefore, sold in 1976.
By 1977, price controls had drained enthusiasm for domestic oil exploration. Imports now cost a total of $45 million, as against $7.7 billion in 1973. Two years later the situation changed. Instability in Iran and the higher prices imposed by OPEC countries now stimulated domestic production, to alleviate international oil shortages. Beginning in June 1979, price controls were to be phased out over 28 months, although they were replaced with a windfall-profits excise tax to keep prices high, a method of encouraging oil conservation.
All these developments as well as the slowdown of offshore exploration in the North Sea, where most major discoveries had already been made, affected the oil supply business. Halliburton's total income, in 1977, $660.2 million, reached $717.5 in 1978, sinking slightly to $648.2 in 1979.
Joint ventures in construction fields helped to offset the oil-field slowdown. In 1976 Brown & Root and Raymond International, a competitor, teamed up in a $22 million bridge construction project in Louisiana. A similar arrangement the same year paired Brown & Root and Norwegian Petroleum Consultants.
Competition Increases in the 1980s
It was the company's old faithful, however, oil well cementing, that formed the basis for post-slump recovery; by 1980 Halliburton was servicing 60 percent of the market. Its service of stimulation of existing wells to retrieve remaining oil was garnering a 50 percent share. In early 1981 all oil price controls were eliminated and well drilling increased proportionately. That year 77,500 new wells appeared, as compared to about 48,500 in 1978.
The upward trend brought competition for Halliburton, when Dresser Industries, Schlumberger Limited, and other industry giants began to diversify into the traditional Halliburton strongholds of cementing and stimulation. By keeping service prices at competitive levels, Halliburton's market share remained at its usual high level, however, and company strength in drilling muds and well logging operations continued to be a flexible guard against competition.
By 1980 the company's total revenues reached $8.3 billion. In 1982, an economic recession plus sharply lower oil prices began to affect the oil exploration industry and its suppliers. The slowdown showed in the total income figure for 1983, which was down to $1.2 billion. While many smaller companies were unable to withstand the hard times, Halliburton merely downsized, slashing its employee roll from 115,000 to 65,000 by 1986, to an eventual 48,600 workers by 1988. Nevertheless, this was not a smooth time for the company. A lawsuit alleging that Brown & Root had mismanaged a south Texas nuclear power plant construction project cost a 1985 settlement of $750 million, producing a $340 million loss for the year.
The acquisitions program continued unabated. A 60-percent share of Geophysical Services, a maker of seismic analysis systems for oil exploration, was bought from Texas Instruments. Gearhart Industries joined the company lineup; within a year its wireline services consolidated with Welex, and its geophysical operations with Geophysical Services.
Research and development became even more active including the development of horizontal drilling techniques. Spearheaded by the Geophysical Services unit, other research focused on continuous three-dimensional control for seismic surveys in offshore exploration.
As the 1980s drew to a close, Halliburton was engaged in about 40 other research and development projects. Streamlining for profitability, it had divested itself of its life insurance subsidiary, plus two other non-oil businesses. In 1989 its total revenues, showing assets of $4.2 billion, were $5.66 billion.
Restructuring and a Major Merger in the 1990s
Under the leadership of CEO Thomas Cruikshank, Halliburton in the early 1990s was contending with the effects of the sustained downturn in the U.S. oil industry, which had begun in 1986. After net income fell from $197 million in 1990 to $27 million in 1991, the company began a multiyear restructuring in 1992. A special charge of $264.6 million was recorded in 1992 for the first stages of the restructuring, which included the elimination of 3,000 jobs, including 26 vice-president slots. In July 1993 Halliburton merged its ten semiautonomous energy services units, including Halliburton Services and Otis Engineering, into a single group called Halliburton Energy Services, in a significant act of streamlining. Also created in 1993 was Brown & Root Energy Services, which combined all of Brown & Root's upstream oil and gas engineering and construction services. Later in the 1990s Halliburton Energy Services and Brown & Root Energy Services were tied more closely together when they were placed within a newly formed Energy Group. Halliburton's engineering and construction activities (with the exception of upstream oil and gas) were likewise consolidated under a new Construction and Engineering Group.
At the same time, Halliburton shed additional noncore or underperforming units. It sold its health care cost management company for $24 million in September 1992; its troubled geophysical services and products unit to Western Atlas International Inc. for $190 million in January 1994; and its natural gas compression business to Tidewater Compression Service for $205 million in November 1994. In relation to its sale of the geophysical unit, Halliburton recorded a $301.8 million charge in 1993. In January 1996, in the last major divestment, the company spun off to shareholders Highlands Insurance, finally ridding itself of its last insurance unit. The only major acquisition of this period came in March 1993 when Smith International, Inc.'s Directional Drilling Systems and Services business was added for about $247 million in stock.
In late 1995 Dick Cheney, who had served as U.S. Secretary of Defense under President George Bush, was named chairman, CEO, and president of Halliburton, taking over the helm from the retiring Cruikshank. Cheney inherited a much leaner and more profitable company thanks to the Cruikshank-led restructuring (net income was $178 million in 1994), and quickly launched another round of acquisitions, perhaps the most ambitious in company history. In October 1996 Halliburton acquired Landmark Graphics Corp. for about $550 million in stock. Landmark, which became part of the Energy Group, was a provider of petroleum exploration and production information systems, software, and services. In April 1997 the company acquired OGC International plc&mdash′ovider of engineering, operations, and maintenance services, mainly to North Sea petroleum production companies--for about $118.3 million. And in September 1997 Halliburton spent about $360 million for NUMAR Corporation, a manufacturer of magnetic resonance imaging tools that evaluate subsurface rock formations in newly drilled oil and gas wells.
But these deals paled in comparison to the $7.7 billion merger between Halliburton and Dresser Industries announced in February 1998. If consummated, the combination would create the world's largest oil services firm in the world, surpassing previous leader Schlumberger. The company, which would operate under the Halliburton name and be headquartered in Dallas, would also combine the two companies engineering and construction units, creating a very strong player in that sector. Dresser would also add to Halliburton a third unit in the area of energy equipment. The new Halliburton, whose revenues would exceed $16 billion, would be led by William E. Bradford (Dresser's chairman and CEO) as chairman and Cheney as CEO.
Principal Operating Units: Energy Group (Halliburton Energy Services, Brown & Root Energy Services, Landmark Graphics Corporation, Halliburton Energy Development); Engineering and Construction Group (Brown & Root Engineering and Construction, Brown & Root Government Services).
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