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Running Head: HALLIBURTON: AMERICA’S OIL GIANT 1

Halliburton: America’s Oil Giant

Maria Johnson

University of Alaska Fairbanks

Professor Cundiff

MBA F617 Organizational Theory for Managers

October 22nd, 2017

HALLIBURTON: AMERICA’S OIL GIANT 2

Organizational Description

Founded in 1919 by Erle Halliburton, Halliburton got its start in Duncan, Oklahoma

cementing oil wells. They received their first patent in 1921 for improved cementing methods

that brought greater petroleum production and environmental safety (Halliburton cements Wells,

2017). This revolutionized how oil and natural gas wells would be completed for production.

Three decades later, Halliburton would again revolutionize well completions with the first

commercial application of hydraulic fracturing in 1949, a new process that dramatically

increases oil and natural gas production (Halliburton cements Wells, 2017). Halliburton took the

initial steps toward becoming a worldwide company in 1926 (Halliburton, n.d.). They entered

into the overseas market in 1940 with operations starting in Venezuela (Gale, 2006). They are

currently the largest oil and gas service provider in North America with $15.9 billion annual

revenue in 2016 (Halliburton, n.d.).

Today, Halliburton has approximately 50,000 employees, representing 140 nationalities,

with operations in approximately 70 countries- Africa, Asia, Australia, Oceania, Eurasia, Europe,

the Middle East, and the Americas (Halliburton-Mission, Vision, Values, n.d.). Halliburton

comprises 14 service lines operating in two divisions: Drilling and Evaluation, and Completion

and Production (Halliburton-Mission, Vision, Values, n.d.). They service upstream oil and

natural gas companies throughout the lifecycle of a well. Halliburton’s mission statement is “To

achieve superior growth and returns for our shareholders by delivering technology and services

that improve efficiency, increase recovery, and maximize production for our customers,”

(Halliburton, n.d., p.1). Their vision is “To deliver a customer experience second to none, as

globally competitive, creative, and ethical thought-leaders,” (Halliburton, n.d., p.1). They value

integrity, safety, collaboration, competition, creativity, reliability, and respect.


Halliburton operates in a volatile market where oil is a high-demand global commodity.

When the price of oil decreases, Halliburton and its competitors are the hardest to be hit.

Halliburton’s customers focus on the cost per barrel which, when down, can negatively affect the

company. In 2015, the company said it incurred a loss of $192 million from depreciated assets

and laying off people because of the downturn in the market (Oyedele, 2016). This may seem

like a huge loss, but Halliburton outperformed its peers that same year. When the market nose

dives, customers focus on price optimization and extraction efficiency; both of which give

promise to Halliburton as their reputation for industry leading technology and lower prices has

held fast throughout their history (Oyedele, 2016).

With its great success and steep profits from North American operations, Halliburton has

acquired ten companies since 1988 (Halliburton – Acquisitions n.d.). This has allowed

Halliburton to expand and grow operations. In 2016, Halliburton announced the acquisition of

Baker Hughes. Baker Hughes is another major oil services provider adding to Halliburton’s

massive hold on the North American market (Dalby, 2014). Unfortunately, this merger failed

facing tough scrutiny from US and European regulators that it would stifle competition in the

industry.

Halliburton’s greatest competition is Schlumberger. Halliburton is second in size and

profit globally to Schlumberger. Schlumberger is estimated to have a market capitalization of

$122.6 billion while Halliburton is worth $47.65 billion (Dalby, 2014). The difference lies in

international operations, new technology, and service quality. Schlumberger has remained two

steps ahead of Halliburton since they have been in competition together. Both companies provide

similar services and technology, but Halliburton holds much of the market share in North

America while Schlumberger dominates foreign operations.


Conducting oil and gas operations in America and worldwide subjects Halliburton to

serious local and federal laws. The federal government owns and controls oil and gas rights on

lands owned by the United States. On state-owned lands within the geographic boundaries of the

applicable state, oil and gas rights are owned by the individual states (Gibbs, McAuliffe, Snare,

Gordon, Miner, McCall, & Gatti, n.d.). However, this industry is unique in that it deals with

surface and subsurface rights. The owner of the mineral rights is legally allowed to extract and

produce oil even if that same party does not own the surface estate. Granting the right to access

oil in the U.S. is through a lease. Use of these leases on federal and state land is done through

regulations (Gibbs et al., n.d.). According to the EPA, oil and gas extraction is considered part of

the mining, quarrying, oil and gas extraction sector (Oil and Gas Extraction Sector, 2016). They

enforce restrictions on air (emissions), waste, and water. The Occupational Safety and Health

Administration has also published general industry standards as well as guidance aimed at

identifying, preventing, and controlling exposure to hazards.

As a worldwide company dealing with intense competition, strict regulations, and high

volatility in price and market stability, Halliburton has adapted a formal, mechanistic

organizational structure. The company’s vertical structure is deep with 128 main executives

(Organizational Chart Halliburton, n.d.). Geographically, Halliburton’s operations are organized

in four primary locations: North America, Latin America, Europe/Africa/CIS, and Middle

East/Asia (Chamberlin, 2014). To manage worldwide operations, Halliburton has headquarters in

Dubai, UAE and Houston, TX. These offices are run separately and designated as the Eastern

and Western Hemisphere offices; each with its own president reporting to the CEO.

Halliburton has 14 product service lines operating between two divisions. These two

divisions are Drilling and Evaluation, and Completion and Production (Halliburton, n.d.). This


amount of service requires a great degree of task specialization. Each of these product service

lines are broken down further again for geography. For example, in North America, Halliburton

provides Stimulation services. This is one of the 14 product service lines under Completion and

Production. Within North America, there are 21 offices (Halliburton, n.d.). This does not include

field locations in remote areas. Each of these offices has a sub-hierarchy of managers and

employees.

With such geographical diversity, Halliburton’s workforce is equally as diverse.

Employees speak more than 200 languages, and range from field operators to engineers,

scientists and managers (Bigner, n.d.). Halliburton recruits from within countries they operate in

and has established regional training centers all over the world to aid in employee’s career

advancement from entry level to mid-management training (Bigner, n.d.).

According to organizational climate surveys, reviews of organizational culture are mixed.

Some employees report generous salaries, knowledgeable coworkers and managers, investment

in training and advancement, diverse workforce, the opportunity to travel, and industry leading

products and services (What is it like working at Halliburton, 2017). While others reported a

focus on short-term profitability, incompetent management, insufficient benefits, and a failure to

achieve customer’s objectives (What is it like working at Halliburton, 2017). For a company of

such size and diversity, there will always be different employee evaluations depending on many

factors such as location, position, management, and of course the market status.

In their remote locations, where jeans and work boots are considered formal wear,

Halliburton employees report a high expectation of safety for both the worker and the company.

All employees are equipped with top of the line personal protective equipment. Halliburton

created the “Journey to ZERO” program that promotes zero health, safety and environmental


incidents and zero non-productive time every day, on every job (Halliburton, n.d.). Halliburton

deployed the “Life Rules” element of the “Journey to ZERO” program as a set of 10 core factors

that affect personal safety. Employees are to use them as a strict set of requirements to ensure

safety.

Problem Statement

Despite their massively large and maintained holdings and success in North America,

Halliburton has struggled to generate noticeable profits overseas. Halliburton has invested more

money into their U.S. based offices and operations than they have internationally. According to

Crowe, their focus has always been on their great success in America, while they continue to

neglect potential international opportunities. During the second quarter of 2017, 55% of

Halliburton’s revenue was generated through North American operations (Crowe, 2017). Since

North America is a major component of Halliburton’s business, the company relies heavily on

those operations to prop them up when overseas markets are struggling. The downside to

dominating the North American market is a classic “all eggs in one basket” approach.

The oil and gas industry is volatile. Anything from politics to natural disasters will affect

the price Americans pay for gas. The hardest hit of the big players in the industry are service

providers (ex: Halliburton, Schlumberger, Baker Hughes, and Weatherford). Unlike producers,

(ex: BP, Shell, Marathon, and Exxon) service providers do not have live assets. That is, they

typically do not own the rights to a producing reservoir. Instead, they provide the services to

identify, extract, and often refine the hydrocarbons that operating companies are producing.

When the price of oil drops, service providers are first to respond to maintain balance between

expenses and revenue. They, unlike oil producers, have no income flowing from the earth.


For example, at the end of 2014, oil prices experienced a steep and sudden decline.

Middle Eastern production levels and slow economic growth internationally were two of many

factors associated with this decline. Service providers, like Halliburton, instantly felt the effects.

The company cut 6,400 workers—8% of its headcount—in early 2015 as it scrambled to reduce

costs. That downsizing came after Halliburton announced that it was slashing 1,000 jobs outside

the U.S. in December of 2014 (Zillman, 2015). Only as forecasts started to show the downturn as

potentially long term, did Halliburton begin to focus on seeking cost efficient technology.

Halliburton even lost contracts with big companies when they refused to negotiate lower prices

for their goods and services.

In order to weather the storm that is the oil and gas industry, Halliburton needs to

diversify. They need to invest resources and technology in their seemingly invisible international

operations. Considering how quickly their clients can turn the tap on and off with these North

American shale wells, and the recently failed (and expensive) Baker Hughes merger, Halliburton

needs to begin investing overseas.

In July of 2017, Halliburton’s CEO Jeff Miller released a statement in which he was

pleased with Quarter 1 and 2 results and optimistic that North American wells would carry them

to profit despite the expected, and usual, lukewarm international growth (Crowe, 2017).

Halliburton’s largest competitor, Schlumberger, had a different point of view. Schlumberger’s

CEO, Paal Kibsgaard, released a statement in which he felt confident the industry was on the

edge of an increase in international activity (Crowe, 2017).

Halliburton has so far recovered relatively well from the failed Baker Hughes merger,

after paying a multimillion-dollar break-up fee. The company caught a break as breakeven prices

for shale in North America were declining, as the merger became unsuccessful (Crowe, 2017). In


the future, they may not be as lucky as the price of services increases and they begin to put more

people and equipment to work. If oil prices remain low and service costs continue to increase,

there is a real possibility that this second wave of shale could come to an abrupt stop. As for

Schlumberger, analysts believe the company is set to "disproportionately outperform in this

environment due to its scale, global diversification, technology leadership and game-changing

Cameron acquisition," (Peters, 2016, p. 2).

Halliburton’s overall problem is the concentration of prospects and resources in a single

market. Relying on a single market could, at best, reduce competitiveness, quality, reliability and

continuity; at worst, it could put a company out of business. The key to avoiding these risks is to

diversify, acquire, and enforce a spending restraint. Halliburton would benefit significantly from

an organizational restructure that would put them on the map as a global competitor and an

industry leader in technology and service quality.

Critical Evaluation

Halliburton will not become a global giant overnight. Managers will have to adopt a

global strategy for development and growth. Fortunately, Halliburton entered the international

market in 1926 with operations in Venezuela (Halliburton, n.d.). They currently conduct business

in the third stage of international business: the multinational stage. As one of the oil and gas

elite, Halliburton may wish to remain in the multinational stage rather than grow into the fourth

and ultimate stage; the global stage. This could be simply due to the nature of the business, not

every country has the natural resources to be economically feasible to host an oil and gas

industry.

Halliburton has extensive experience in many international markets and has established

research and development facilities in several foreign countries (Daft, 2016). Operating as a


multinational company, Halliburton has an extremely complex organizational structure. This

complexity is due in part to the challenges that accompany a global design. Effective

coordination, greater diversification, and difficulty transferring knowledge are the three main

challenges facing a company during global expansion (Daft, 2016).

Halliburton tackled its coordination efforts by organizing into four primary locations

(Chamberlin, 2014). Two offices are run separately and designated as the Eastern and Western

Hemisphere offices; each with its own president reporting to the CEO. This need for effective

coordination and greater diversification is even more prevalent in the oil industry since every

country Halliburton works in will have different taxes, laws, regulations, natural resources, and

techniques all relating to the extraction of oil and natural gas. Overseas oilfields are generally

mature fields. Mature fields are reservoirs that have been in production for many years and have

depleted a natural energy (Mature Fields. n.d.). As a result, Halliburton must use different

extraction techniques and technologies than used in U.S. oil reservoirs in North America, which

are unconventional. Unconventional oilfields are those that require innovation and new

technology to extract and produce oil (Mature Fields. n.d.).

These influences drive the need for Halliburton to develop a multidomestic strategy. This

type of approach is typically utilized by companies with mature product lines and stable

technologies (Daft, 2016). This strategy is intended to tailor design, assembly, and marketing to

each country’s needs (Daft, 2016). Halliburton currently has international divisions with

domestic structures. The company aimed to create a competitive advantage by standardizing

products to keep costs low. However, services by nature, need to occur on a local level.

Halliburton should restructure their international divisions to create a competitive advantage


through local responsiveness. They should give managers the discretion to modify products and

services to fit locale while also planning and implementing new products on a global scale.

Recommendations

To successfully reorganize and implement this global geographic structure, Halliburton

must remain focused on three objectives: diversification, acquisitions, and spending restraint.

Achieving success in these objectives will position Halliburton to be better suited to withstand

low oil prices domestically and internationally. Halliburton will also gain increased international

competitive advantage against their biggest competitor, Schlumberger.

Successful diversification requires using several initiatives. Departments created for

diverse laws and regulations and dispersing operations such as engineering, manufacturing, and

sales are two things Halliburton has already done. Service companies who are truly diversified

are best positioned to weather commodity cycles and still generate profit (Peters, 2016). For

Halliburton, that means not relying on North American sales to carry them through a global oil

recession. Halliburton needs to implement a variety of approaches, a broader array of activities,

and a larger number of products and services on an international level (Daft, 2016). With

successful diversification, Halliburton would be able to embrace the volatility of the industry and

use short-term recessions to increase exposure and become more aggressive internationally.

Halliburton could also use a major acquisition with a large, international competitor to

boost them to success in the international arena. Halliburton's proposed merger with Baker

Hughes could have created a company that would be a tough international competitor and give

Schlumberger a run for its money (Peters, 2016). After facing tough scrutiny from US and

European regulators, the $28 billion merger was abandoned (Oyedele, 2016). Baker Hughes is

the third largest oilfield service company globally and regulators were afraid the merger would


stifle competition in their industry. The proposed merger, in the midst of the 2014-2015 oil crash,

would have proved difficult to justify to shareholders (Oyedele, 2016).

Schlumberger, however, completed the successful acquisition of Cameron International

in April 2016. Cameron is a flow equipment company specializing in wellhead and surface

equipment, flow control as well as processing technology (Schlumberger completes Cameron

acquisition for $14.8bn, n.d.). The purchase of Cameron, brought together surface and subsurface

technology across the drilling and production systems. A lesson from the Schlumberger –

Cameron merger is for Halliburton to focus their acquisition and merger intentions on enabling

companies to combine resources and share risks to become more competitive, not creating an

unethical, and illegal, monopoly.

Another small powerhouse in the oil industry, Weatherford, has emerged as a more

focused entity after two years of cutting costs and selling off assets (Peter, 2016). There is also a

lesson here for Halliburton, who needs to emphasize spending restraint at all levels of the

company. They should budget spending to encourage international marketing facilities that can

focus on local responsiveness. A budget cut would also reduce the number of layoffs in the next

downcycle. If better prepared, Halliburton could maintain headcount while also making cost

efficient technologies a top priority.

Managerial Application

The recommendations presented are certainly feasible. Basic processes are currently in

place that need to be further expanded such as research and development and succession

planning. The frameworks provided in Daft’s (2016) text, can be utilized to enhance existing

strategies in Halliburton’s organizational structure such as a strong multinational presence. At


the managerial level, tasks should align to the recommended company strategies such as

diversification, smart acquisitions, and spending restraints.

To tackle the issue of diversity, managers need to become familiar with the host country

in which they do business. They must understand local culture, policies, laws, and regulations.

It’s important they know how the company is perceived amongst residents and local competition.

For example, a manager from India based in North Dakota needs to understand all variables

influencing the location such as weather, culture, and competition.

It is also important that managers create and encourage open communication channels to

provide feedback on the potentiality of a proposed acquisition. An acquisition is a systemic event

that is felt by all in an organization. Therefore, all attempts should be made to garner buy in prior

to the acquisition.

Fiscal responsibility should be required of all managers. Balancing their local or

departmental budget has a culminating effect on the organizations spending restraint. Managers

should provide succinct oversight so that budget activities within their control are successfully

and efficiently.

Halliburton is America’s oil giant. To maintain this status and sustained success they

need the right structure and focus. This could increase revenue and take the international stage by

storm. It is critical that Halliburton diversifies their product lines, makes smart acquisition

decisions, and prepares a sustainable economic budget. They have a strong history of

revolutionizing the way America extracts and produces natural resources. They have the

experience and the technology; it is time to focus on successful implementation of sustainable

business practices.


References

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talent-in-every-country-and-culture/

Chamberlin, A. (2014, October 31). Must-know: A quick overview of Halliburton. Retrieved

October 05, 2017, from http://marketrealist.com/2014/10/must-know-quick-overview-

halliburton/

Crowe, T. (2017, July 24). Halliburton Second-Quarter Earnings: Back in Black. Retrieved

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Poisoned.html

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g=d768b461-0f6a-45ba-b306-9faf1fff35d5

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halliburton-baker-hughes-deal-failed-2016-5

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oilfield-services-stocks-could-beat-the-commodities-crash/


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Appendix A

Organizational Structure

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