Documente Academic
Documente Profesional
Documente Cultură
INDEPTH
Special Edition
July 2007
BAKER HUGHES
INDEPTH
Editor
Ron Bitto
Managing Editor
Pramod Kulkarni
Contributors
Michael Beyeler
Soraya Brombacher
Noel Atzmiller
Isaac Kerridge
Brenda Sharp
Sheila Luebbert
Howard Batt
Craig Fleming
Susan Bourgain
Tom Haynes
Kathy Shirley
Published by
Art Director
Eric Olson
Artists
Jody Cockrell
Summer Garner
Victoria Quijano
Beth Prete
Oscar Sajche
April 15, 1922. The Mexia Field was discovered in Texas. Hobson, Blackstock
and their crew drilled the well with a 133/4 Hughes Simplex bit.
ACKNOWLEDGMENTS
Acknowledgments
Bibliography
Publications, 1997.
A Century of Houston Energy, Houston Business Journal, 2001.
Baker Hughes annual reports, 1987-2006.
Baker Oil Tools and Baker International annual reports,
1975-1986.
Brantley, J.E.: The History of Oil Well Drilling, Gulf Publishing
CONTENTS
1907-1917
A Century of Innovation Begins
1918-1927
Oil Boom during the 1920s
14
1928-1937
Oilfield Services Emerge
20
1938-1947
Modern Manufacturing, Supporting the War Effort
28
1948-1957
Post-War Growth
34
1958-1967
International and Offshore Markets
42
1968-1977
Broadening the Product Lines, Diversification
50
1978-1987
Boom, Bust and Consolidation
60
1988-1997
A Decade of Acquisitions
70
1998-2007
A New Century and a New Millennium
80
A CENTURY OF INNOVATION
I
1907-1917
6
BAKER HUGHES:
A Century of Innovation Begins
R.C. Baker
1872-1957
1869-1924
he Baker Hughes story began in the early 20th century, when two young men
set out to make their fortunes in the booming new oil fields of California and
Texas. Initially both men worked as wildcatters, but they achieved lasting success
through technical innovations that would improve operations for the entire industry.
In 1907, R.C. Baker received a patent on a casing shoe that advanced well cementing
so much that it launched Baker Oil Tools. In 1909, H.R. Hughes, Sr. patented a roller
cone bit that made it possible to drill through deeper, harder rock. This invention
gave birth to the Hughes Tool Company. A century later, Baker Hughes carries on
the tradition of technical innovation not only by its two founders, but also by the
many other industry pioneers whose inventions and business lines became part of a
global oilfield service leader.
7
1907-1917
R.C. Bakers Inventions Launch
Oilfield Equipment Business
1907-1917
Howard R. Hughes, Sr. Solves
the Problem of Rotary Drilling
Prior to the
invention of the
Hughes rotary bit,
wells were drilled
with fishtail bits.
10
Employees operate
belt-driven lathes at the original
Hughes Tool Company plant, 1909.
Then in 1908, Hughes and Sharp built the first two-cone bit
made of steel. Rather than scraping against the formation as
fishtail bits did, the new roller cone bit was designed to crush
and grind the rock.
The partners conducted two secret tests on a drilling rig in
Goose Creek (now Baytown), Texas. Each time, Hughes asked
the drilling crew to leave the floor. Then he pulled the bit
from a locked wooden box, and his associates ran the bit into
the hole. The drill pipe twisted off on the first test, but the
second was extremely successful.
Hughes Tools first research lab. Note the blocks of rock drilled
in this derrick laboratory. Bits were tested on the steam-driven
rotary drilling machine, purchased in 1911.
1907-1917
William S. Barnickels Demulsifier
Recovers Oil from Basic Sediment
Year
The World
Energy
Industry
Technology
Baker Hughes
Milestones
1848
1859
1866
Diamonds discovered in
South Africa.
1901
Commonwealth of Australia
formed.
Spindletop discovery at
1,020-ft depth creates Texas
oil boom.
1903
1907
1908
1909
1910
1911
Charles F. Kettering
develops an electric automobile
starter so gasoline powered
cars no longer need a crank.
Greenwich Mean Time adopted.
1912
1913
1914
1915
1916
Name "Pennzoil"
trademarked by Pennsylvania
Refining Company.
Two-speed drawworks
hoist with brake becomes
standard.
1917
13
1918-1927
14
Oil Boom
during the 1920s
he 1920s were an exciting time for the oil industry. In 1921, oil was discovered
in the Los Angeles Basin at Signal Hill, Huntington Beach and Santa Fe Springs.
To meet the increasing demand for drilling equipment, the Baker Casing Shoe
Company started manufacturing operations and Hughes Tool Company launched
new products to improve drilling and reaming in deeper and harder formations. By
the end of the decade, both companies had expanded their operations in California, the
Mid-continent and Texas. Meanwhile, Tret-O-Lite and Petreco were competing
with each other to separate water from produced oil in the California oil fields.
15
1918-1927
Baker: Entrepreneur
to Manufacturer
17
1918-1927
Tret-O-Lite and PETRECO Grow
through Competing Technologies
Meanwhile, Frederick Cottrell and James Speed were developing electrostatic methods for separating oil from water. In 1910, Allen C. Wright
formed the Petroleum Rectifying Company of California (PETRECO),
which built electric dehydrating plants based on Cottrells and Speeds
inventions to serve California oil fields. By 1922, PETRECO had 417
treaters in operation.
Melvin DeGroote:
The Inventor
In 1924, Melvin DeGroote (1895-1963) joined Tret-O-Lite as chief
research chemist. During his career, the companys laboratory
conducted more than a half-million experiments on more than
93,000 compounds. By the time he retired from Petrolite in 1960,
DeGroote had earned 963 U.S. patents, making him the most
prolific inventor of his era (second only to Thomas Edison in the
number of patents). Under his leadership, the company became
an industry giant.
A worker makes a
barrel test with Tret-O-Lite
demulsifier in the Cushing Field in 1918.
18
Year
1918
1919
1920
1921
1922
1923
1924
1925
1926
1927
The World
Energy
Industry
Technology
Baker Hughes
Milestones
Tret-O-Lite establishes
a new manufacturing plant
in Webster Groves, Missouri.
V. I. Lenin dies.
First Olympic Winter Games
19
1928-1937
20
Baker Oil Tools started offering coreing services during the 1930s.
he oil industry has ridden the boom-to-bust cycle many times during its
history, but the stock market crash of 1929 and its impact on world economy
increased the impact of these energy demand cycles. The Depression affected the
growth of Baker Hughes fledgling companies as survival became the watchword of
many industry entrepreneurs who had invested heavily in start-up operations and
manufacturing capabilities.
21
1928-1937
Bakers Growth and Downturn
H. John Eastman
In 1928, Baker Casing Shoe Company was renamed Baker Oil Tools,
Inc. to reflect its broad range of products and services. By 1929,
Baker Oil Tools had grown to 96 employees with its best year ever of
$868,000 in revenues. The future looked bright. But Baker did not
escape the crash unscathed. Only three years later, BOT reached a
low point when income dropped to $299,000 and Carl Baker was
forced to lay off employees who had been with him from the start of
the company.
But there were also bright spots within the industry during the
Depression years. One of the brightest was early recognition that
services could be offered profitably to the oil field in addition
to building equipment and selling it directly to individual oil
companies. This concept of professional expertise in the field to
support manufactured products would create a whole new sector of
the industry...oilfield services. Services became even more important
as oil companies expanded operations throughout North America
and to growing overseas markets. With far-flung operations, oil
companies grew to depend upon service companies to provide local
expertise and technically sophisticated products demanding special
knowledge and skills. Effectively providing this service would differentiate Baker Hughes throughout the companys history.
22
had been on fire for more than a year. Mr. Eastman was soon called
upon to use controlled directional drilling to kill blowouts around
the world. Today, INTEQ carries on this leadership in directional
drilling established by the original Eastman Oilwell Survey Company
that H. John Eastman founded in Long Beach, California.
1928-1937
Miller Finds the Right Mix
for Drilling Fluids
n the early years, the drilling fluid used in cable-tool rigs was
mostly water to soften the earth and make it more pliable for
drill-bit penetration. As rotary rigs supplanted cable drilling and
roller-cone bits proved themselves, more elaborate drilling fluids
called muds, were developed and introduced into the borehole
to cool and lubricate the bit, circulate the rock cuttings from the
bottom of the hole to the surface, and hydrostatically balance the
drilling-fluid column. With the expansion of the industry in the
20s and 30s, opportunities unfolded to introduce even better
drilling fluids to enhance drilling efficiency.
Baker Model K
cement retainer
24
25
1928-1937
Petrolite is Formed
Throughout the 1920s, Tret-O-Lite, Inc. (which used
chemical demulsifiers) and PETRECO (which used
electric dehydrating towers) competed to provide oil/
water separation services to recover oil from produced
basic sediment. In 1929, Tret-O-Lite, Inc. merged with
another chemical supplier Vez Company, to form Tuxedo
Corp. In 1930, Tuxedo and PETRECO merged to form
Petrolite Corporation, which brought together their
radically different technologies to treat oilfield and refinery
hydrocarbons. One early outgrowth of the union was the
first electrical desalter, which was installed at the Ashland
Oil Co. refinery in Cattlesburg, Kentucky in 1936.
26
Year
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
The World
Kellogg-Briand treaty
outlaws war.
Penicillin discovered.
Energy
Industry
Technology
Baker Hughes
Milestones
FDR elected.
Scientists split the atom.
Schlumberger brothers
commercialized electric
well logging.
Oil discovered in Bahrain.
Prohibition ends.
Adolph Hitler elected
Chancellor of Germany.
FDR launches the New Deal.
27
1938-1947
28
Modern Manufacturing,
Supporting the War Effort
n 1938, Adolf Hitler occupied Austria, and Europe seemed headed toward
another world war. Meanwhile, the fledgling Baker Hughes companies were
transitioning from small-scale shops to modern manufacturing facilities equipped
with machine tools and other processes. As Baker Oil Tools expanded from its
California base into the Mid-Continent and southwest U.S., Hughes Tool Company
was also expanding nationwide.
29
1938-1947
Hughes Expands its Horizons
Over the decade, the Hughes product line was extended to core
bits, tool joints and drill collars. Simultaneously, Hughes Tools
geographic coverage was expanded virtually nationwide through
regional offices in California, Wyoming, Oklahoma and Midland.
An export office was established at the Rockefeller Plaza in New York
and international representatives were based in London, Buenos
Aires and Caracas. As Hughes Tool Company expanded, so did the
interests of its young president. Howard Hughes, Jr. financed his
endeavors in aviation and motion pictures in Hollywood with profits
from the company he had inherited.
Early Christensen
diamond core bit
30
Growth at Lane-Wells
By 1938, the Lane-Wells Company had outgrown its original
workshop and moved into a 10-acre site at 5610 South Soto Street
in Los Angeles. The company now offered three services: gun
perforating, electrologging, and oilwell surveys. Products included
packers, liner hangers, survey instruments, knuckle joints,
whipstocks and mills. Perforating services were extended during
this decade into the Mid-Continent region through a shop in
Oklahoma City. While Walt Wells was in charge of marketing,
Bill Lane was supervising field operations and engineering. In
1938, Lane announced his retirement. He passed away in 1949.
1938-1947
Eastman Extends
Directional Drilling
During the 1930s and 40s, H. John Eastman directed most of the
shoreline drilling under the ocean in the Huntington and Long Beach
Harbor areas. In 1941, the company headquarters were moved from
Long Beach to Denver. In the Rocky Mountain region, slanted wells
were drilled to reach sweet spots underneath mountain ranges.
Year
1938
1939
1940
1941
1942
1943
1944
1945
1946
1947
The World
Energy
Industry
Technology
Baker Hughes
Milestones
Battle of Britain
Leon Trotsky assassinated,
40-hour work week goes into
effect in the U.S.
Christensen Diamond
Products Co. founded in
Salt Lake City, Utah.
33
1948-1957
34
Post-war Growth
fter World War II, the industry re-focused on technology and geographic
expansion, especially in North America. Discoveries in Nebraskas Gurley field
opened the Denver-Julesburg Basin and shortly afterwards North Dakotas Williston
Basin came into play. In California, the first commercial gas well went into production
near Oakland, and a well was drilled over water from an island structure off Seal Beach.
In Louisiana, the first offshore well was drilled out of sight of land in 1947. By the mid1950s there were 2700 active rigs in the U.S., drilling more than 57,000 wells through
233 million feet of bedrock.
In Canada, the Leduc discovery set off an oil boom in Alberta, and soon after, gas was
discovered in Nova Scotia. Oilfield service companies debated which market to chase
in a time of opportunity. Even with similar discoveries on other continents, including
the worlds largest oil field in Ghawar, Saudi Arabia and oil finds in Nigeria and Algeria,
most chose to stay focused on North America where it was easier to operate.
35
1948-1957
Baker Builds New Plant, Expands
In the U.S., Baker Oil Tools matched the industrys growth with
an aggressive expansion of its operations. During 1948-59 a total of
50 new branches were established in sixteen states and a Baker export
office was opened and staffed in New York. Baker Oil Tools also
outgrew its Huntington Park facility and in 1952 the Los Angeles
headquarters moved into a new plant and building on a 13-acre site
on Slauson Avenue. The facility was built at a cost of $1,250,000,
and Reuben C. Baker was proud to note that none of the money for
the expansion was borrowed. In 1950, Baker introduced the Model
E, the first retrievable casing packer.
4500
4000
3500
3000
2500
2000
1500
1000
500
19
49
19
51
19
53
19
55
19
57
19
59
19
61
19
63
19
65
19
67
19
69
19
71
19
73
19
75
19
77
19
79
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
20
05
36
Lane-Wells Advances
Logging Technology
The Baker Atlas predecessor company LaneWells also grew steadily after the war with
growth in all parts of the U.S. The boom areas
of East Texas, the Permian Basin and New
Mexico stretched resources, and by 1950 there
were a total of 249 Lane-Wells wireline units
serving North America and Venezuela. LaneWells established its Canadian offices in the
early 1950s to end the long drives from the
Wyoming service base, and to establish a
presence as a major contributor to future
Canadian oil and gas development.
Introduced in 1948,
Lane-Wells shaped-perforating
charges were manufactured under bakery-like clean
conditions (left). A Permeability Lab (right) was built
in Houston in the early 1950s.
An Eastman
directional
driller lowers a
whipstock into
a well.
37
1948-1957
Milwhite Evolves
After a hiatus that began during World War II, Milwhite
restarted its drilling mud business in 1952. To meet demand
during the 1950s, Milwhite mining operations and grinding
plants were greatly expanded to keep up with increased demand.
The company bought a Continental Oil clay plant in Riverside,
Texas and also began to grind barites imported from mines in
Nova Scotia. Milwhite products were sold on consignment in
Canada and West Texas to companies that maintained their own
warehouses and staff of field engineers. In coastal Texas and eastern Louisiana, products were serviced by Milwhite field engineers,
but warehouses were generally operated by appointed dealers.
In 1956, St. Louis-based Mississippi River Fuel Company,
purchased Milwhite.
Centrilift Begins
Lane-Wells logging
truck and interior monitoring equipment
38
New Products
Improve Efficiency
Bakers Model A
Tension Packer was
designed to support
water flooding projects.
1948-1957
Neutron Log Pioneer
Arthur Youmans was an Iowa farm boy who managed to
educate himself during the Great Depression and had a penchant
for physics. He began his oilfield career in 1948 as a Staff
Chemist at Well Surveys, Inc., a small oilfield services company
in Tulsa, Oklahoma. His key project soon became the development
of a pulsed-neutron logging tool capable of locating and assessing
oil through cased boreholes. Over the next decade, his persistent
work and the help of a team of co-workers led to the Neutron
Lifetime Log in 1963 the first commercially available pulsedneutron tool. In the years that followed, the Neutron Lifetime
Log discovered millions of barrels of oil that otherwise might
never have been found.
In 1960, Well Surveys merged with Lane-Wells and Youmans
quickly advanced to senior research positions. He was acknowledged
as an international expert on well logging and by the end
of his career had received over 75 U.S. patents.
A Founder Dies
In early 1957, during one of the most successful
periods in the companys history, Reuben C.
Baker retired as President of Baker Oil Tools.
A few weeks later, Mr. Baker died after a brief
illness. He was 85 years old. Mr. Baker left a
legacy of creative genius, integrity, and dedication to providing quality products and services
to the oil and gas industry. Although he only
had three years of formal education, Mr. Bakers
inventions earned him 150 U.S. patents. He was
succeeded as Baker Oil Tools president by his
long-time associate Ted Sutter.
I think I have lived in the most wonderful period of all time. Science and invention found
their stride during my lifetime. I can remember the first gasoline engine, the first automobile,
the first electric light, telephone, wireless telegraph, submarine, airplane, radio, and now
atomic development. R.C. Baker
40
Year
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
The World
Energy
Industry
Technology
Baker Hughes
Milestones
Lane-Wells co-founder
Bill Lane dies.
Whipstock Inc. founded
in Louisiana as Eastman
patent expires.
Baker Transworld formed
for Venezuela operations.
DNA discovered.
Hillary and Norgay climb
Mt. Everest.
Lane-Wells is acquired
by Dresser Industries.
E.D. McMurry founds
McMurry Oil Tools to provide
gas lift equipment.
Hughes Tool Co. opens
manufacturing plant in
Belfast, Northern Ireland.
Lane-Wells establishes
Westheimer location, acquires
Elgen Company.
European Community
established.
Soviet satellite Sputnik
launches Space Age.
41
1958-1967
42
International and
Offshore Markets
fter a brief recession during 1956-58, the oil and gas service sector resumed
sustained growth and expansion through the 1960s. In the continental United
States, significant discoveries were made in the Denver, Williston and Permian basins.
Offshore, oil fields were discovered on the continental shelf of the Gulf of Mexico,
bringing the oil patch to south Louisiana. Internationally, giant fields were discovered
in the Middle East, leading to the formation of OPEC in 1960. The energy industry in
Russia expanded with the discovery of major gas fields, and the giant Daqing field was
discovered in China. But these two Communist nations remained closed to Western
operating and service companies.
The 1960s boom cycle turned Baker Oil Tools, Hughes Tool Company, Lane-Wells
and Eastman into industry leaders and the period also fostered technological innovation
that led to the formation of new oilfield service companies.
43
1958-1967
Sutter, Clark Lead
Baker Growth
Hughes Tool
Companys Research
& Engineering
laboratory was the
most extensive in
the industry, 1958.
45
1958-1967
Lane-Wells Survival and Successes
47
1958-1967
Centrilift: Tulsa to Tripoli
In 1966, the Centrilift ESP business moved to a new plant
in Tulsa, which was jointly occupied with Byron Jackson
Pump standard products division. Centrilifts sales and
service activities were expanded as units were added in
Canada and other parts of the United States. To better serve
these customers, a network of service centers was developed,
which located service personnel and equipment close to the
installations through North America.
Centrilifts first foreign installations were made in
Germany, Austria and Brunei in the early 1960s. Work
was also going on at this time in South America. The first
major export was to the Oasis Oil Company in Tripoli,
Libya in 1965, a contract for 43 units.
48
Year
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
The World
Energy
Industry
Technology
Baker Hughes
Milestones
NASA founded.
Hula hoop becomes popular.
Lane-Wells introduces
Neutron Lifetime Log.
Petrolite applies first inhibitor
dispersant in a naptha HDS
heat exchanger.
Discoveries in Alaskas
McArthur River, West Texas
and Oklahoma.
Production begins in Egypts
Gulf of Suez.
49
1968-1977
50
n the late 1960s and 1970s, new markets, new products, new applications, and
corporate mergers drove industry growth and diversification. The 1973 Arab oil
embargo ignited exploration activity as oil discoveries on Alaskas North Slope and
the North Sea basin spurred development of large new reserves.
51
1968-1977
Hughes Goes Public, Grows
through Acquisitions
During the 1970s, Hughes manufactured over 400 types of drill bits (left)
and was the largest manufacturer of
tool joints.
52
53
1968-1977
Christensen Develops PDC Bit
Christensen applied
innovative synthetic
diamond manufacturing
technology to introduce
the first PDC bit
in 1976.
54
1968-1977
of Magna Corporation in 1977. Magna would become part of Baker
Performance Chemicals in 1985.
Baker pursued product line expansions in retrievable packers, safety
valves and well-washing equipment. Baker gravel packing services
began to steadily increase in importance. In 1976, the company
established a separate division called Baker Sand Control to specialize
in this sand control technology and service.
This pattern of diversification continued into mid decade, when
Baker acquired Harold Brown Co., a gas lift systems and surface
valve actuator manufacturer, as well as EXLOG, a leader in mud
logging and geological engineering services. In 1973 Tri-State Oil
Tool Industries brought additional drilling and fishing tools to
Bakers service package. Many market niches were pursued including
the formation of Baker Offshore, which provided well testing equipment packages for offshore drilling rigs.
To support dramatic growth Baker added or expanded manufacturing
facilities in all or its divisions to increase capacity and install new
processes. The old Navigation site in Houston was demolished and
Houston personnel moved into new facilities at the same location.
In Aberdeen, construction of a new manufacturing plant was begun.
Bakers most notable acquisition during this era was Reed Tool
Company in 1975, a major supplier of drill bits, tool joints and other
petroleum equipment as well as products in the mining industry.
With this acquisition, the company joined the Fortune 500 list of
leading American corporations for the first time.
In 1976, Baker Oil Tools changed its name to Baker International
Corporation to reflect its new position as a major player in
oilfield services.
To better align operations five new company Groups were formed
to include Reed Tool Company, Drilling Services, Baker Oil Tools,
Production Services and Mining. They would split further into
autonomous divisions to redirect engineering, production and
management efforts in response to the increased need for specialized
products and services. With the Reed Tool acquisition, Baker
International pursued three strategies to help customers discover,
develop, and improve the recovery of oil and gas reserves.
Other Developments
Other companies that would become part of Baker Hughes also
were positioning for industry growth during this decade. In the
late 60s, Centrilift expanded its network of service centers with
Petrolite was also busy moving into new markets and products
during this decade. To service the Asian market, a Toyo-Petrolite joint
Diversification during the 1970s led Baker Oil Tools to form seven companies to support all of its oilfield services.
57
1968-1977
venture was formed in Japan during 1975. A blend plant
opened in Saudi Arabia in 1978 and in Canada, Norchem
Services was formed to distribute oilfield chemicals developed
at Petrolites Tulsa Research Center. In the U.S., Petrolite
became the sole distributor of Wemco air flotation water
clarifier vessels. The first unit was installed for Gulf Oil Co. in
California. Welchem, a future Petrolite acquisition, patented the
A-Sol product line for downhole stimulations and remediation
treatments. A new manufacturing plant in Bayport, Texas came on
stream to enhance distribution.
In 1972 Petrolane, a California conglomerate, purchased Whipstock,
Inc. Two years later, Petrolane also acquired Eastman Oilwell Survey
Company to create Eastman Whipstock Incorporated, the worlds
largest directional drilling company. Eastman Whipstock performed
directional drilling and surveying services on some of the first North
Sea platforms, including the Forties field in the U.K. sector, and all
four of the Ekofisk platforms in Norway.
Howard Hughes, Jr. sold his interest in the Hughes Tool Company
in 1972, but his diversified business interests, including the Hughes
Aircraft Company, Hughes Airwest Airline and Las Vegas casinos,
continued to thrive. Hughes died at the age of 70 on April 5, 1976
of kidney failure while en route from Acapulco to Houston. He left
behind an estate worth $2 billion. One of his charitable legacies is
the Howard Hughes Medical Institute, a leader in molecular biology
and medical science education.
58
Energy
Industry
Technology
Baker Hughes
Milestones
Year
The World
1968
1969
1970
1971
VCRs introduced.
Mao Zedong invites U.S.
ping pong team to China.
1972
1973
1974
1975
1976
1977
59
1978-1987
60
Boom, Bust
and Consolidation
he years 1978-1987 would turn out to be, by turns, the most exhilarating and
the most traumatic decade in Baker Hughes history. The oil embargo of 1973,
the rise of OPEC, and the Iranian revolution drove crude oil prices to record levels.
Heightened prospects for oil, natural gas and coal as well as new tax incentives
attracted investment from both established companies and speculators. In this
booming environment, most oilfield service companies pursued a strategy of expansion
by increasing their presence in North America and international markets, and by
purchasing other companies. By December 1981, the U.S. rig count reached 4530
active rigs, and demand for oilfield products and services seemed unquenchable.
61
1978-1987
T
Boom Years:
Hughes Tool Company
After it became a public company in 1972, Hughes Tool pursued
a strategy of adding product lines and increasing geographic
coverage. In 1978, it acquired Brown Oil Tools, a leader in liner
hanger technology and a provider of equipment for cementing,
completion and workover. The company also acquired McMurry
Oil Tools, whose products included gas lift valves, side-pocket
mandrels, and coupons for monitoring corrosion in pipelines.
Hughes also added a plant in Singapore to manufacture tool
joints and a facility in Brazil to produce drill bits, rig equipment
and drill collars.
In 1979, Deng Xiaoping, the Vice Premier of the Peoples Republic of
China visited the Hughes Tool plant in Houston during his historic
and highly publicized trip to the United States. Hughes had been
selling drill bits to China since it opened to Western companies in
1973. In 1980, Hughes signed a 10-year agreement to supply bits to
the Chinese.
In 1980, Hughes Tool Companys revenue exceeded $1 billion for the
first time, with sales of $1.2 billion, a 50% increase from 1979.
During 1980, Hughes acquired Centrilift from Borg Warner, and
the Claremore, Oklahoma, electrical submersible pump (ESP) plant
was added in the same year. Hughes also acquired Submergible Oil
Services (SOS) in 1980 and combined it with Centrilift. SOS had
developed variable speed drive technology, which optimized pump
system performance and efficiency.
In 1981, Hughes Tool Companys revenues increased 46%, reaching
$1.8 billion. During the year, the company built a manufacturing
63
1978-1987
Rapid Growth for Baker
International
In 1979 Baker Internationals revenues were up 27%, exceeding
$1 billion for the first time. It was organized into three operating
units, Baker Drilling Equipment, Baker Oil Tools, and Baker
Mining Equipment, each with several divisions. In 1980, revenues
increased another 32% to $1.5 billion, based largely on the growth
of its drilling-related product lines, which had been added in the late
1960s. In 1981, Baker International revenues grew another 38%,
topping $2.1 billion.
In 1981, Baker opened the safety systems plant in Broken Arrow,
Oklahoma, and introduced a new line of subsurface safety valves.
The company enlarged its manufacturing plant in Singapore and
expanded operations in Saudi Arabia and West Africa. The company
formed Baker Supply Products Division (Baker SPD) to compete in
the oilfield supply store segment.
The Baker Sand Control division added seven bases in the U.S.,
Latin America and West Africa and developed a single-trip,
multi-zone gravel pack system that cut rig time in half compared
to conventional methods. The division also built a sand control
manufacturing plant in Singapore.
EXLOG introduced a probe-based measurement-while-drilling
system in 1980, and Baker Service Tools developed a downhole
motor that went commercial in 1981.
In 1980, Milchem formed domestic and international divisions
for its drilling fluid business and in 1981 opened 12 new locations
in nine countries. In 1980, Milchem introduced the first hightemperature polymer drilling mud. In 1982, Milchem opened a
barite mine in Arkansas and installed a grinding mill in Venezuela.
Also in 1982, the division began construction on its 12-story
Milchem Place building on Essex Lane in Houston; the facility
would eventually become the Baker Hughes corporate headquarters.
Magna, the oilfield chemical division, grew rapidly by taking
advantage of increased drilling, workover and enhanced oil
recovery operations.
Baker International also invested in its mining equipment businesses, believing that coal mining would become a growth market
during the energy crisis, and that metals would be needed as raw
materials for the growing economy.
In 1982, the company also established Goals and Controls budgeting, which was the basis of the quarterly planning process that the
company still uses today.
Baker Internationals financial results in 1982 reflected the downturn
that began in the second quarter of that year. The companys revenue
growth rate slowed to 18% for the full year. Not only had the drilling
market collapsed, but the metals mining industry had its worst year
since 1929, and the growth in coal mining had not materialized.
1978-1987
Hughes Responds to
the Downturn
Hughes Tool Company recorded an operating loss of $91 million
in 1983 and a loss of 134 million in 1984, then broke even in
1985 as it took major steps to respond to the industry downturn.
With an estimated overcapacity of 50% in most product lines,
oilfield service firms had to offer steep discounts to price-conscious
customers. Only technologically superior products could be sold at
adequate margins.
Hughes consolidated its eleven operating divisions into five
business units and closed a plant in California. The company sold
excess inventory and disposed of six different product lines.
To reduce overcapacity in the pressure pumping business in the U.S.
and Canada, BJ-Hughes Services and Dresser Titan Services, Inc.
formed a general partnership called BJ-Titan Services Company.
Baker International
acquired Newpark Drilling Fluids and combined it
with Milchem to form Milpark Drilling Fluids.
66
An Eastman
Christensen directional supervisor
begins a steerable motor operation using the
NorTrak system.
67
1978-1987
In 1987, Litton Industries and Dresser Industries formed a joint
venture combining their respective divisions Western Geophysical
and Dresser Atlas. The combined company was called Western
Atlas. Dresser Atlas was renamed Atlas Wireline Services.
68
Year
The World
Energy
Industry
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
Technology
Teleco Services introduces first
MWD system.
Centrilift introduces
Centriline ESP cable.
Milchem introduces
CARBO-FAST oil-based mud.
Bakerline casing liner hanger
introduced.
Baker Hughes
Milestones
Hughes Tool acquires McMurry
Oil Tools and Brown Oil Tools.
Hughes Tool opens plants
in Brazil and Singapore.
Baker Sand Control formed.
69
1988-1997
70
A Decade of Acquisitions
uring its first decade as Baker Hughes Incorporated, the company made a
series of more than 30 acquisitions and divestitures to reinforce its core
technical competencies in drilling, formation evaluation, completion and production.
Understanding the importance of technology as a differentiator, Baker Hughes made
an ongoing commitment to research and development to assure a steady stream
of innovations. Horizontal drilling and completion technology, for both new and
re-entry sidetrack wells, was a particular focus for the companys technology programs.
During the decade, Baker Hughes also pursued non-oilfield businesses, with the
formation of its Baker Process unit.
71
1988-1997
Acquisitions and Divestitures
n 1988, despite the flat U.S. drilling activity, the new corporation
returned to profitability with a net income of $103 million on
revenues of $2.32 billion.
During the decade, Baker Hughes set the objective of being either
the #1 or #2 provider in each of its market segments. This approach,
first espoused by General Electric, was the driving force behind
Baker Hughes strategy for acquisition and divestiture of business
lines. In 1988, Baker Hughes divested its interests in Vetco Gray
(subsea equipment), BJ Machinery (drilling rig surface equipment)
and Econolift (progressive cavity pump systems). In 1989, the
company sold its mining equipment group, but acquired EDECO
Petroleum Services, which sold electrical submersible pumps and
completion systems.
Baker Hughes management did not see long-term potential in specialty
tubular products, and considered the pressure pumping business too
capital intensive. In response, the company sold the tool joint business
of Hughes Tool Company, and completed an initial public offering
(IPO) to spin off BJ Services as a separate company in 1990.
72
73
1988-1997
Technology Innovations
A gravel pack
simulator helped
Baker Sand Control
engineers design
gravel pack
completions for
horizontal wells.
74
Introduced in 1997
with Agip S.p.A, the
AutoTrak Rotary
Closed-Loop system
was a step change in
directional drilling
performance.
Milpark Drilling
Fluids division
was integrated into
INTEQ in 1993.
75
1988-1997
Centrilift Expands ESP Market
During the 1990s, Centrilift continued to strengthen its manufacturing capabilities in Claremore, Oklahoma, introduced new
products and expanded its markets to the Eastern Hemisphere,
including Russia, China, and to Venezuela in South America. In
1993, Centrilift began to export ESP systems to the Former Soviet
Union, establishing Baker Hughes as a supplier in this slowly
emerging market.
During the decade, Centrilift introduced the Electrospeed ICS
Variable Speed Controller, and the Horizontal Injection Pump. In
1997, Centrilift strengthened its capabilities with the acquisition
of Oil Dynamics, Inc, an ESP competitor with unique technology.
The same year, Centrilift joined Baker Process Systems and Baker Oil
Tools in developing the HydroSep downhole oil/water separator.
Process Equipment
During the 1990s, Baker Hughes also served the process equipment
market segment. Process companies included EIMCO Process
Equipment, a supplier of liquid separation and filtration equipment
for wastewater treatment; Bird Machine Company, manufacturer
of centrifuges for separation of solids from effluents, and EPEC, a
supplier of municipal sewage treatment equipment. In 1992, the
process divisions name was changed to EnviroTech.
In 1994, as the process industries business declined, Baker Hughes
divested the Measurement and Controls Group of EnviroTech and
organized the remaining companies into the Process Equipment
Operations group. In 1996, Baker
Hughes acquired Vortoil Separation
Systems, a leader in hydrocyclones
for separating oil from water.
Baker Performance
Chemicals had extensive
business in Venezuela.
76
77
1988-1997
Project Renaissance
In the fall of 1997, Baker Hughes Chairman Max Lukens convened
400 of the companys top managers to introduce the concept of
re-engineering the corporation and to announce the kick-off of
Project Renaissance. This multi-year project would develop common
processes across the Baker Hughes enterprise, introduce shared
services for essential business functions, and implement SAP as a
single financial and resource management system for Baker Hughes.
(At the time, the company was using over 30 incompatible
financial software systems). David Barr was the first head of Project
Renaissance. He was succeeded in 1999 by Andy ODonnell.
In 1997, to close out the companys ninth decade, Baker Hughes
revenues were $3.7 billion.
78
Year
The World
Energy
Industry
Technology
Baker Hughes
Milestones
1988
1989
1990
1991
1992
1993
1994
Eastman Christensen
introduces the egg beater bit.
Baker performs the first horizontal
gravel pack completion.
Atlas Wireline Services logs
the farthest extended reach well
to date in the Gulf of Mexico.
1995
1996
1997
79
1998-2007
80
A New Century
and a New Millennium
he tenth and most recent decade of the Baker Hughes story was shaped
by business cycles characteristic of the oil and gas industry. After a poorly
timed acquisition and changes at the top, the companys management defined a
strategy that focused on Baker Hughes strengths in the oil field and its specialized
technology for oil and gas wells. By 2007, Baker Hughes has achieved rapid growth,
and has continued to invest in new technology, global infrastructure and a diverse
workforce. The company also has begun to extend its capabilities beyond the
wellbore to provide customers with broader solutions to help them understand their
reservoirs and maximize recovery.
81
1998-2007
A Major Acquisition
Responding to a Downturn
The downturn continued in 1999, as oil prices dropped to $11/barrel
and the worldwide rig count declined by 21%. This drilling activity
drop off and overcapacity in the seismic industry resulted in poor
financial results for service companies. In 1999, Baker Hughes reduced
variable and fixed costs by $1 billion, laid off 10,000 people and took
a write-off for its seismic operations, as Western Geophysical removed
16 vessels from service.
To instill financial discipline, Baker Hughes adopted its Baker
Value Added (BVA) metric in 1999. BVA is a measure of financial
performance that integrates operating results with the balance sheet
and measures performance in relation to the cost of invested capital.
Baker Hughes Business Support Services was established in the first
quarter of 1999, with BHBSS employees providing shared services
in Accounting, Payroll and Information Technology for corporate
functions and five divisions.
82
Project Renaissance continued, and SAP had been installed for all
U.S. locations of Baker Oil Tools, INTEQ, Baker Atlas and Baker
Petrolite by the end of 2000. In December 2001, Project Renaissance
was officially closed.
New Facilities
In 1998, Baker Petrolite moved into its new
Sugar Land, Texas headquarters, combining
laboratories and administrative offices.
83
1998-2007
WesternGeco venture
In 2000 to reduce the impact of the severe downturn in seismic
services, Baker Hughes formed a venture with Schlumberger to
combine the assets of Western Geophysical with those of GecoPrakla. Baker Hughes received $500 million and retained a 30%
ownership in the new WesternGeco. Also in 2000, Baker Hughes
sold the Nigerian oil-producing assets of its E&P Solutions group.
Strategic Focus
In the early 2000s, Baker Hughes reaffirmed its commitment to an
organization based on strong product-line divisions and strengthened
the corporate center with enterprise departments for legal, finance,
human resources, marketing and business development functions.
84
In the 1990s, the drilling industry increased its use of PDC drill
bits, and Hughes Christensen faced growing competition as more
suppliers entered the diamond bit market. To regain its lead, Hughes
Christensen launched the Genesis program. The intensive, threeyear research program was based on the premise that drilling
performance could be optimized when the PDC bit was specifically
designed to match each drilling application. Launched in 2001,
the Genesis product line was a great success, and by 2002 had
re-established Hughes Christensens lead in the diamond drill bit
market. Enhancements to the Genesis program have included
Genesis XT bits (2004) and Genesis ZX technology (2006).
For the past decade, Baker Atlas has upgraded its technology offering
to compete effectively in the high-end wireline logging market. The
Reservoir Characterization Instrument (RCI) service, first introduced
in 1997, has unique capabilities for analyzing formation fluids downhole. The RCI services capabilities have enabled Baker Atlas to gain a
substantial share of deepwater logging activity. Baker Atlas logged eight
of the first 13 exploration wells in deepwater blocks off Angola.
Other important technologies introduced by Baker Atlas include the
3D ExplorerSM resistivity logging service for evaluating thinly laminated
zones; the XMACSM Elite acoustic logging service for measuring rock
properties and correlating with surface seismic measurements; the
Earth ImagerSM service for obtaining wellbore images in oil-based
mud; and the Magnetic Resonance ExplorerSM service for characterizing
and quantifying reservoir fluids.
Baker Oil Tools has maintained its historical leadership in completion, intervention and workover technology. Notable innovations in
completion technology have included High-Pressure/High-Temperature
equipment including packers, flow control equipment and safety valves.
Baker Oil Tools also leads the industry in liner hanger technology,
including the Flex LockTM liner hanger system. Intervention systems
include conventional fishing tools and innovative through-tubing
inflatable systems.
Baker Oil Tools also introduced a number of key innovations in
sand control technology. In 1997, the division first combined its
EXCLUDER sand control screens with the EQUALIZER flow
control devices (licensed from Norsk Hydro) to provide completions
that would efficiently drain oil reservoirs from long horizontal wells,
while delaying water coning. This technology has since been installed
in a total of more than 20 miles of horizontal wellbore, with most
applications in Norway and Saudi Arabia.
Throughout the decade, Baker Oil Tools also has continued to develop
gravel packing tools and procedures. In 1999, Baker Oil Tools introduced its first two technology vessels, the Republic Tide and the R.C.
Baker, for gravel packing and fracturing service in the Gulf of Mexico.
85
1998-2007
In 2001, Baker Hughes launched the H.R. Hughes technology
vessel. The StimForceTM modular stimulation vessel template was first
deployed on the deck of a supply vessel in Equatorial Guinea in 2006.
Other significant Baker Oil Tools innovations over the past decade
include a variety of multilateral completion systems, the InForce
and InCharge Intelligent Well Systems, and expandable solutions
for well screens and solid tubulars.
Since 1998, Baker Petrolite has held its place as the largest oilfield
chemical supplier based on proprietary chemistries and outstanding
service. The divisions production chemicals inhibit corrosion,
deposition and the build up of waxes and paraffin in producing
wells. Baker Petrolite established a leading position in the deepwater
market with HI-M-PACTTM hydrate inhibitors and its FATHOM
deepwater treatment programs. The F.O.A.M.TM program helps
operators remove water from gas wells and has been widely applied in
North America. In 2006, Baker Petrolite revived its original Tretolite
brand to help market its complete line of demulsifiers for separating
oil from produced water. Baker Petrolite also has introduced products and services to help refiners and petrochemical plant operators
improve operational efficiency.
In 2002, Baker Petrolite formed the Pipeline Management Group
(PMG) to provide pipeline integrity services for the worlds aging
pipeline systems. Initially, PMG included tethered pipeline inspection
services (transferred from Baker Atlas) and pipeline cleaning and flow
enhancement services already resident in Baker Petrolite. In 2003,
Baker Hughes acquired the Cornerstone Pipeline Integrity Group
(CPIG), which had unique smart pig technology for in-line pipeline inspection. With CPIG technology, PMG has become a leader
in the pipeline integrity market.
Centrilift has continued to advance electrical submersible pumping
system technology by introducing enhancements to extend run life,
even while operating in hostile conditions. New Centurion pump
features addressed high gas content, high temperatures and high
solids content. The Electrospeed II variable speed controller and
downhole performance monitors were introduced to further improve
system efficiency.
Centrilift also has made strides in extending ESP applications into
new applications. The division has installed dual ESP systems for
offshore applications, both in subsea and platform wells, often to
replace gas lift systems. ESP systems also have been applied as subsea
boosters to help move produced oil along subsea tie backs, and to lift
oil to Floating Production Storage and Offloading vessels. Centrilift
also has applied ESP systems to dewater gas and coalbed methane
86
87
1998-2007
Two Segments/Four Regions
In 2005, Baker Hughes had another outstanding year, as
revenues reached $7.2 billion. During the year, the company
was organized into two business segments and aligned into four
consistent geographic regions. The Drilling and Evaluation
segment includes four divisions: Hughes Christensen, Baker
Hughes Drilling Fluids, INTEQ and Baker Atlas. The
Completion and Production segment includes Baker Oil
Tools, Centrilift and Baker Petrolite. At the same time, Baker
Hughes aligned its global operations into four geographic
regions: North America, Latin America, Europe Africa Russia
Caspian, and Middle East Asia Pacific.
Exiting WesternGeco
In 2006, Baker Hughes sold its 30% interest in the WesternGeco
venture to Schlumberger for $2.4 billion, ending the companys
involvement in the surface seismic acquisition business.
ProductionQuest Pursues
Production Optimization
In 2005, Baker Hughes formed a production optimization
business unit to help oil and gas company customers maximize
recovery from both new and existing wells. The company
purchased full ownership of QuantX Wellbore Monitoring,
which had been formed as a joint venture between Baker
Hughes and Expro International, and the Luna Energy
company, which had developed fiber optic sensing technology.
In addition, Baker Hughes acquired Nova Technologies
Corporation, a supplier of downhole gauges and subsea
umbilical installation services. In 2006, these product lines
were combined with the SentryNet chemical automation
business from Baker Petrolite to form the ProductionQuest
business unit. This group also will provide intelligent production
systems that incorporate completion, pumping and chemical
technology from other Baker Hughes divisions.
New Dubai
regional headquarters, including
training, manufacturing and office
facility is scheduled
to open in 2008.
Year
1998
The World
Energy
Industry
Technology
Baker Hughes
Milestones
2002
2003
2004
Enormous tsunami
devastates Asia.
George W. Bush reelected
U.S. President.
2005
1999
2000
2001
2006
2007
89
CORE VALUES
INTEGRITY
We believe integrity is the foundation of our individual and corporate actions that drives
an organization of which we are proud.
We are a responsible corporate citizen committed to the health and safety of people, protection
of the environment, and compliance with laws, regulations, and company policies.
We are honest, trustworthy, respectful and ethical in our actions.
We honor our commitments.
We are accountable for our actions, successes and failures.
TEAMWORK
We believe teamwork leverages our individual strengths.
PERFORMANCE
We believe performance excellence will drive the results that differentiate us
from our competitors.
LEARNING
We believe a learning environment is the way to achieve the full potential of each
individual and the company.
90
KEYS TO SUCCESS
People contributing at their full potential. Everyone can make a difference.
We understand our priorities and performance goals.
We drive to do our part every day.
We support new ideas and take appropriate risks.
We take action to find and correct problems.
We commend each other on a job well done.
91
COR-07-13127