A question and answer session with Jeff Miller, the president of the American oilfield services firm Halliburton.
Let me start with a question posed in a Wall Street Journal headline the other day: "As oil bust recedes, is a barroom brawl about to break out?", which was referring to a quote from you. Is the premise of that question right: has the oil bust receded?
We think we are clearly on a path to recovery. We’re seeing increased activity in North America and the supply/demand balance for US onshore services is headed in the right direction, but we are still in an oversupplied equipment market. Internationally, lower commodity prices continue to put pressure on pricing and activity. However, we believe we will see a bottoming of this market in the first half of 2017. Even though the light at the end of the tunnel is getting brighter, there is no question we remain in a very challenging market.
Is it fair to say the large oil service companies such as Halliburton will now concentrate just on profitable work and resist industry cost deflation, duke it out, as it were, with the oil companies?
I can only speak for Halliburton … we’re most focused on those customers with whom we best collaborate, who value what we do and who ultimately reward us for helping them make better wells. We’ve worked closely with our customers during the down cycle to improve their project economics through technology and operating efficiency. Now, we are at a point in the North American cycle where we are shifting our focus from building to maintaining market share, while improving profitability.
Relatedly, David Lesar said to investors he expected that competition for market share would give way to a concentration on profitable business. Has there been a fundamental change in the industry or is it still a cyclical business?
History shows the oil and gas industry is a cyclical business. What is changing is how both operators and service companies approach our current environment. We see operators taking a methodical response in activity based on commodity price fluctuations. At Halliburton, we’re focused on being asset light so we can more efficiently address the quicker duration cycles that we see taking place.
Does the proposed merger between GE and Baker Hughes indicate that the sector is still ripe for more consolidation?
There will always be mergers and acquisitions in our industry as companies attempt to gain a competitive advantage. No matter how the competitive landscape evolves. Increased intensity and competition drives us to work harder and to better serve our customers.
The oil slump has been brutal in terms of cost-cutting – particularly jobs – by oil companies, with Halliburton alone cutting by 40 per cent, or 35,000. Are you still in streamlining mode?
We’re constantly evaluating our costs structures to address the current environment. In the third quarter, we achieved a monthly run-rate of the US$1 billion structural cost reductions announced earlier this year.
The US shale oil patch has contracted significantly in the past two years but showed signs of rebound in recent months. How would you assess its prospects for next year?
US land markets are recovering and we expect a steady climb in activity to continue as operators get back to work and repair their balance sheets. Of course, we believe this is dependent on certain commodity price thresholds.
In the Middle East, there is a great deal of reform and reorganisation going on, not least at Abu Dhabi National Oil Company (Adnoc). How is this affecting Halliburton?
In in our industry we see change happening every day – what is important for a company like Halliburton is how we work with our customers such as Adnoc and Opcos to collaborate and engineer solutions to maximise asset value and deliver the lowest cost per barrel regardless of the environment. We know that change brings its own set of challenges so we focus on what we do best.
How would a decision by Opec – and potentially some non-Opec producers – to limit output affect Halliburton?
Output limits would likely reduce activity in some places and increase activity in others. That being said, shorter, more volatile commodity price cycles are inevitable in the industry.
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