Halliburton gaining pump technology in Baker Hughes deal

November 20, 2014 | Mergers, Acquisitions & JVs, Products, Services & Techniques

Houston, USA | – With its $34.6 billion purchase of Baker Hughes Inc., Halliburton Corporation will add a new technology that’s aimed at replacing the well-known nodding donkey pumps that have been a symbol of the oil business for a century.

The new system, unveiled by Baker Hughes in May, offers a way to retrieve the final drops of crude from aging oilfields, and should help fill a gap in Halliburton’s offerings.

The $14.8 billion global market for boosting output in aging wells is expected to almost double by 2020, delivering growing profits as plunging crude prices force some producers to cut drilling budgets. Halliburton is now No. 11 in the market. The new device, ready for use early next year, is part of a Baker Hughes product portfolio that’s expected to help boost the combined company to the No. 2 spot.

The new system will “retire one of the symbols of our industry,” said Mario Ruscev, Baker Hughes’s chief technology officer, at a company presentation in May. “It’s unlike anything the artificial-lift industry has ever seen.”

As oilfields mature, they lose the pressure that forces crude to the surface. Nodding donkeys, the 15-foot (4.6-meter) tall pumps installed atop wells, are the best-known type of artificial lift for bringing it up.

The market for artificial lift systems is expected to almost double to $26 billion globally in the next five years, from an estimated $14.8 billion this year, said Richard Spears, vice president at the Tulsa, Oklahoma-based research company Spears & Associates Inc.

Increasing Share

Schlumberger Ltd., the world’s biggest provider of oilfield services, is No. 2 in the artificial lift market with a 16 percent market share. Halliburton will vault into a tie for the second spot with a 16 percent share after acquiring Baker Hughes. Weatherford International Plc is No. 1, with 19 percent, according to Spears.

Halliburton Chief Executive Officer David Lesar discussed his company’s limited artificial lift offerings in the weeks leading up to the deal. “It would be a great product addition to the portfolio,” he told Bloomberg News on Oct. 22. “We see it as a natural extension” of our business.

Most of Baker Hughes’s artificial lift business now comes from another technology, electronic submersible pumps that are installed at the bottom of wells and push oil up. That will round out Halliburton’s offerings at a time when customers expect servicers to offer a complete package, from evaluating oilfields’ potential, to drilling and fracking wells, and installing pumps to keep them flowing.

Low-Flow Wells

“Schlumberger is the only company that can deliver everything everywhere,” Spears said. “Halliburton has to marry with Baker Hughes in order to be everywhere with everything.”

Baker Hughes has installed more than 4,000 of its FlexPump submersible pumps in the past 18 months, delivering more than 600,000 barrels a day, Luke Lemoine, an analyst at Capital One Southcoast in New Orleans, wrote in a research note last week.

The nodding donkey pumps are best for low-flow wells that produce less than about 6,000 barrels a day.

Electronic submersible pumps are better for wells that have much higher output, as much as about 40,000 barrels a day. They’re as wide as the wells and can be as long as 40 feet. Because they must be completely submerged in crude for the systems to function, they aren’t used in low-flow environments.

LEAP Systems

Ruscev said the LEAP systems, linear electromagnetically actuated pumps, will be effective with wells producing as little as a single barrel a day. That makes them a potential replacement for the nodding donkey. It’s also the sweet spot for the U.S. shale oil industry, where wells typically slow down quickly.

The technology will let operators use a single artificial lift system for the life of the well, Melanie Kania, a Baker Hughes spokeswoman, said in an e-mail.

With crude prices at a four-year low, oil companies are cutting back on drilling. Compared to the millions of dollars needed to drill a new well, adding artificial lift technology is a cheaper alternative to maintain production from older wells.

“You can still get pretty good bang for your buck by reinvigorating the well with artificial lift,” Andrew Cosgrove, an analyst at Bloomberg Intelligence, said in a phone interview.

Linking two of the world’s three largest oilfield service providers, both based in Houston, will make Halliburton a little more than half the size of Schlumberger. The combined company will dominate the $25 billion U.S. onshore market for hydraulic fracturing, which blasts water, sand and chemicals underground to free trapped hydrocarbons. Halliburton and Baker Hughes’s combined 39 percent market share will be more than double Schlumberger’s share.

Demand for artificial lift systems is surging, according to Weatherford, the top supplier. Because of a “very, very, very strong backlog,” next year should be “extremely strong” for artificial lift, the Geneva-based company’s Chief Executive Officer Bernard Duroc-Danner told analysts and investors last month on an conference call.