Transforming
`Executing
`Performing
`
`2010 annual report to stockholders
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`Transforming... E xecuting... Per forming
`
`We have embarked on a multi-year strategy to transform Baker Hughes into a stronger oilfield
`service company. As a result, we believe we have the most promising opportunities for improved
`financial performance of any major oil service company.
`
`
`
`
`
`
`
`
`
`• Beginning in 2008, we acquired several reservoir-consulting firms and have consolidated
`them into Baker Hughes Reservoir Development Services including Gaffney, Cline &
`Associates. With the 2010 acquisitions of Meyer and Associates and JewelSuite,™ we can
`now offer our customers reservoir consulting and software for the life of the reservoir.
`
`• In 2009, we reorganized around geographies to build stronger relationships with our
`customers, improve operational effectiveness and optimize our product lines.
`
`• Also in 2009, we began a multi-year initiative to optimize our supply chain to reduce costs,
`improve performance and move closer to our customers.
`
`• And, in 2010, we acquired BJ Services, adding pressure pumping, coiled tubing and
`cementing as our newest, and largest, product line. We undertook this transformation
`to increase market share and realize long-term profitable growth.
`
`In 2011, our focus is on moving beyond transformation to execution and delivering on the
`promise of our new capabilities.
`
`
`
`
`
`
`
`
`
`• We are leveraging our product lines to provide customers with a full suite of services
`from reservoir analysis to advanced directional drilling to advanced completions to pressure
`pumping and real time microseismic and reservoir monitoring.
`
`• Our geomarket managers are building stronger relationships with their customers,
`developing more holistic views of the market, communicating priorities to the Products
`and Technology organization that reflect new insight, and maintaining excellent rig site
`performance and a strong safety record.
`
`• Our Products and Technology organization is centralized, more efficient and focused
`on commercializing innovative technology and services.
`
`•
`
` And our enterprise functions are organized to efficiently support our new
`global organization.
`
`We have made specific commitments to improve top- and bottom-line performance. We have
`developed detailed plans to meet these goals and are executing our plans one quarter at a time.
`As an organization we understand that execution is the key to performance.
`
`This Annual Report to Stockholders, including the letter to stockholders from Chairman Chad C. Deaton, contains
`forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Sec-
`tion 21E of the Securities Exchange Act of 1934, as amended. The words “will,” “expect,” “should,” “scheduled,”
`“plan,” “aim,” “ensure,” “believe,” “promise,” “anticipate,” “could” and similar expressions are intended to identify
`forward-looking statements. Baker Hughes’ expectations regarding these matters are only its forecasts. These
`forecasts may be substantially different from actual results, which are affected by many factors, including those
`listed in ”Risk Factors“ and “Management’s Discussion and Analysis of Financial Condition and Results of Opera-
`tions” contained in Items 1A and 7 of the Annual Report on Form 10-K of Baker Hughes Incorporated for its year
`ended December 31, 2010. The use of “Baker Hughes,” “our,” “we” and similar terms are not intended to describe
`or imply particular corporate organizations or relationships.
`
`Additional information about the company is available on our
`website at http://investor.bakerhughes.com/annuals.cfm
`
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`Selected Financial Highlight s
`
`
`
`(In millions, except per share amounts)
`As Reported:
` Revenues
` Operating income
` Income from continuing operations
` Income before cumulative effect
` of accounting change
` Net Income
` Net Income attributable to Baker Hughes
`
`Per share of common stock:
` Income from continuing operations:
` Basic
` Diluted
`
` Net Income:
` Basic
` Diluted
` Dividends
`
`Number of shares:
` Weighted average common shares diluted
`
`
`
`
`
`$
`
`
`$
`
`$
`
`819
`819
`812
`
`2.07
`2.07
`
`2.06
`2.06
`0.60
`
`
`
`395
`
`812
`–
`–
`
`
`
`
`
`$
`
`
`$
`
`$
`
`
`
`
`
`
`
`Year Ended December 31,
`
`2010 (1)
`
`2009
`
`2008
`
`2007
`
`2006
`
`$ 14,414
` 1,417
`819
`
`
`$ 9,664
`
`732
`
`421
`
`$ 11,864
` 2,376
` 1,635
`
` 1,635
` 1,635
` 1,635
`
`$
`
`
`$
`
`$
`
`5.32
`5.30
`
`5.32
`5.30
`0.56
`
`$ 10,428
` 2,278
` 1,514
`
` 1,514
` 1,514
` 1,514
`
`$
`
`
`$
`
`$
`
`4.76
`4.73
`
`4.76
`4.73
`0.52
`
`$ 9,027
` 1,934
` 2,399
`
` 2,419
` 2,419
` 2,419
`
`$ 7.26
` 7.21
`
`$ 7.32
` 7.27
`$ 0.52
`
`421
`421
`421
`
`1.36
`1.36
`
`1.36
`1.36
`0.60
`
`311
`
`
`
`309
`
`
`
`320
`
`
`
`333
`
`421
`–
`–
`
` 1,635
`
`–
`
`–
`
` 1,514
`
`–
`
`–
`
` 2,419
` (1,035)
`
`(20)
`
`Reconciliation from As Reported to
` operating profit:
` Net income attributable to Baker Hughes
` Non-operational items, net of tax (2)
` Discontinued operations, net of tax (3)
`
` Operating profit after tax (4)
`
`Per share of common stock:
` Operating profit after tax:
` Basic
` Diluted
`
`
`
`
`
`$
`
`812
`
`$
`
`421
`
`$ 1,635
`
`$ 1,514
`
`$ 1,364
`
`$
`
`
`2.06
`2.06
`
`$
`
`
`1.36
`1.36
`
`$
`
`
`5.32
`5.30
`
`$
`
`
`4.76
`4.73
`
`$ 4.12
` 4.10
`
`Cash, cash equivalents and
`$ 1,706
`$ 1,955
`$ 1,595
`$ 1,104
`$ 1,054
` short-term investments
` 5,568
` 4,634
` 4,612
` 3,837
` 3,346
`Working capital
`Baker Hughes
` 22,986
`Total assets
` 11,861
` 11,439
` 9,857
` 8,706
`Baker Hughes
`Baker Hughes
`Light Blue
` 3,885
` 2,333
` 1,800
` 1,084
` 1,075
`Total debt
`Gold
`Orange
` 14,286
` 6,807
` 7,284
` 6,306
` 5,243
`Stockholders’ equity
`PMS® 299
`PMS® 124
`21%
`Total debt/capitalization
`15%
`
`17%
`
`
`20%
`
`26%
`
`PMS® 179
`CMYK equiva-
`Baker Hughes Green
`CMYK equivalent
`CMYK equivalent
`53.1
`35.8
` 34.6
`
`34.4
`39.8
`Number of employees (thousands)
`
`
`lent
`PMS® 355
`Cyan: 0%
`Cyan: 0%
`Cyan: 86%
`(1) We acquired BJ Services Company on April 28, 2010, and their financial results from the date of acquisition through the end of 2010 are included in our results.
`CMYK equivalent
`Magenta: 27%
`Magenta: 88%
`2010 and 2009 income from continuing operations also includes costs incurred by Baker Hughes related to the acquisition and integration of BJ Services.
`Magenta:8%
`Cyan: 95%
`(2) On April 28, 2006, we sold our 30% interest in WesternGeco, a seismic venture we formed with Schlumberger in 2000, and recorded an after tax gain of
`Yellow: 100%
`Yellow: 84%
`Yellow: 0%
`$1,035 million.
`Magenta: 0%
`Black: 0%
` Black: 0%
`(3) The selected financial data in 2006 includes reclassifications to reflect Baker Supply Products Division as discontinued operations.
`Black: 0%
`Yellow: 98%
`(4) Operating profit after tax is a non-GAAP measure comprised of income from continuing operations excluding the impact of certain non-operational items.
`We believe that operating profit after tax is useful to investors because it is a consistent measure of the underlying results of our business. Furthermore,
`Black: 0%
`management uses operating profit internally as a measure of the performance of our operations.
`
`
`
`2010 Revenues by Segment
`
`North America, 46%
`Industrial Services
` and Other, 7%
`Middle East/
` Asia Pacific, 16%
`Europe/Africa/
` Russia Caspian, 21%
`Latin America, 11%
`
`Total Revenues
`2008–2010, by Quarter
`(In millions)
`
`Total Operating Profit
`After Tax Per Share (Diluted)
`2008–2010, by Quarter
`
`Total Debt
`2008–2010, by Quarter
`(In millions)
`
`$5,000
`
`$4,000
`
`$3,000
`
`$2,000
`
`$1,000
`
`$0
`
`$1.50
`
`$1.25
`
`$1.00
`
`$0.75
`
`$0.50
`
`$0.25
`
`$0
`
`$5,000
`
`$4,000
`
`$3,000
`
`$2,000
`
`$1,000
`
`$0
`
`2008
`
`2009
`
`2010
`
`2008
`
`2009
`
`2010
`
`2008
`
`2009
`
`2010
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`To Our Stockholders
`
`The accomplishments of 2010 marked a significant milestone in our
`multi-year efforts to transform Baker Hughes and position the company
`for growth and long-term profitability.
`
`In 2010, after a year-long effort to obtain full government approval, we completed the
`
`acquisition of BJ Services and integrated pressure pumping, coiled tubing and cementing
`capabilities into our global service offering. We also further reinforced our reservoir capa-
`bilities through acquisition and realignment of our consulting services; our geographic and
`business segment organization became fully functional; and, our enterprise-level supply
`chain effort began to deliver signif icant cost savings.
`In North America, the “unconventional” gas and oil plays became the foundation of our
`land business, driving demand for directional drilling, advanced completion systems and
`pressure pumping.
`In April 2010, the industry mourned the loss of 11 men working on the Deepwater Horizon.
`Although we were not involved in the accident, we did provide products and services to help with
`the capping, relief well and clean-up efforts following the blowout. The accident and associated
`spill negatively impacted our business in the Gulf of Mexico, as the drilling moratorium, the cre-
`ation of new regulations, and the pace of permit approval impeded all new drilling activity from
`late April through the end of the year. Given the difficulty of permitting new wells both in deep
`water and on the shelf, we saw increased demand for our workover and stimulation services to
`battle production declines, but not enough to offset the revenue we would have generated from
`the 33 deepwater rigs that were idled.
`The international market entered what we believe to be a multi-year trend of increasing
`spending as the global industry battles decline curves and invests to satisfy expanding global
`demand for oil and natural gas.
`
`Financial Results
`In 2010, Baker Hughes recorded its highest annual revenue to date, with top-line growth
`driven by our acquisition of BJ Services. Baker Hughes results for the year include results of
`BJ Services starting from May 2010.
`Revenue for 2010 was $14.41 billion, up 49% compared to $9.66 billion in 2009. Net income
`attributable to Baker Hughes for 2010 was $812 million or $2.06 per diluted share, compared to
`$421 million or $1.36 per diluted share for 2009.
`Earnings before interest, taxes, depreciation and amortization, or “EBITDA,” for 2010 were
`$6.63 per diluted share, up 41% from $4.70 for 2009.
`Capital expenditures were $1.49 billion, depreciation and amortization expense was $1.07 bil-
`lion and dividend payments were $241 million in the year 2010.
`At the end of 2010, Baker Hughes had $3.88 billion in debt, and cash and short-term invest-
`ments of $1.71 billion. We also had $1.7 billion undrawn and available under committed credit
`facilities. Our debt to capital ratio was 21%. Our net debt was $2.2 billion and our net debt to
`capital ratio was 13%.
`
`Transformation Complete
`For the past several years, Baker Hughes has invested in building a diverse global workforce,
`expanding our infrastructure to support growing markets in North America and internationally, to
`develop new technology and expand our capabilities to do so, and to deliver products and equip-
`ment to serve our clients. This investment set the stage for further changes to make us stronger
`and more competitive.
`In May 2009, we announced a fundamental change in Baker Hughes’ organizational struc-
`ture, moving from a product line organization managed through divisions to a geographic organi-
`zation managed through geomarkets. The geographic organization has met our objectives of
`building closer relationships with our customers and developing a more holistic view of
`the market while maintaining excellence in rig site execution and safety.
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`$14.4B
`
`our revenue in 2010 –
`the highest in Baker
`Hughes history
`
`April 28
`
`date BJ Services
`acquired following
`DOJ approval
`
`109%
`
`growth of North Amer-
`ica revenue in 2010
`compared to 2009
`
`In 2010, we also improved our reservoir consulting and engineering capabilities by forming
`the Reservoir Development Services group that combines several consulting and software firms
`acquired since 2008 and other Baker Hughes geotechnical professionals.
`On April 28, we received approval from the U.S. Department of Justice to complete our
`acquisition of BJ Services. And on August 28, following the divestiture of certain Gulf of Mexico
`businesses and assets, the Department of Justice agreed to the lifting of a Hold Separate Order,
`allowing the full combination of the U.S. businesses of Baker Hughes and BJ Services. Interna-
`tional integration was well under way when the divestiture was completed in August, and we
`were finally able to leverage the full synergies across all product lines globally.
`
`Geographic Highlights
`North America
`North America revenues were $6.62 billion in 2010, up 109% from $3.17 billion in 2009.
`Success in our North America land business centers on the unconventional reservoirs and the
`use of horizontal drilling, advanced completions and pressure pumping to access the reserves.
`Baker Hughes is a leader in these products and services.
`Beginning in September 2010, when BJ Services’ U.S. operations were formally merged into
`Baker Hughes, we moved with agility to leverage the strengths of the legacy Baker Hughes prod-
`uct lines with the newly acquired capabilities of BJ Services. We continue to expand our service
`capabilities. We opened a new service facility in Westmoreland County, Pennsylvania, and we plan
`to invest in enough facilities, equipment and personnel to add one additional pumping spread in
`North America every six weeks.
`Service intensity continues to increase as customers are planning longer horizontal wells
`and tighter spacing between frac stages, resulting in more stages and higher demand for
`hydraulic fracturing.
`Depending on the basin, pressure pumping capacity remains tight with backlogs stable at
`90–180 days. The supply chain for new equipment is stretched, and we believe that it is unlikely
`that the industry can increase pressure pumping capacity faster than demand in 2011.
`In Canada, in addition to delivering drilling and hydraulic fracturing services for unconven-
`Capital Expenditures
`tional oil, Baker Hughes is active in the oil sands where we provide drilling services, completion
`2008–2010, by Quarter
`(In millions)
`chemicals and artificial lift. Our experience in heavy oil treatment, our advanced drilling systems,
`$600
`and our high temperature electric submersible pump (ESP) technology have enabled us to be an
`important supplier for steam assisted gravity drainage (SAGD) wells.
`$500
`
`$400
`
`Latin America
`Revenue in Latin America was up 43% in 2010, reaching $1.57 billion compared to $1.09 bil-
`$300
`lion in 2009, led by strong performance in our Brazil and Andean geomarkets.
`$200
`In Brazil, in a little more than four years, Baker Hughes has grown from supporting two simul-
`$100
`taneous offshore directional drilling jobs to servicing 22 simultaneous jobs today. Baker Hughes
`$0
`also provides complete drill cuttings handling and drying systems on 34 rigs. With the combi-
`2009
`2008
`2010
`nation of drilling, evaluation and completion technology and the three pumping vessels from
`BJ Services currently operating in Brazil, Baker Hughes is positioned to be a leading supplier
`to Petrobras.
`
`Europe/Africa/Russia Caspian
`Revenue in the Europe/Africa/Russia Caspian segment was $3.01 billion in 2010, up 8% from
`$2.77 billion in 2009.
`In Europe, Baker Hughes maintained strong positions in the UK and Norway. We opened our
`EcoCentre in Peterhead, Scotland, which provides comprehensive, environmentally compliant drill-
`ing waste management services. A Baker Hughes conducted reservoir study helped the Norway
`
`Capital Expenditures
`2008–2010, by Quarter
`(In millions)
`
`North American Revenue
`2008–2010, by Quarter
`(In millions)
`
`$2,500
`
`$2,000
`
`$1,500
`
`$1,000
`
`$500
`
`$0
`
`2008
`
`2009
`
`2010
`
`North American Revenue
`2008–2010, by Quarter
`(In millions)
`
`International Revenue
`2008–2010, by Quarter
`(In millions)
`
`$2,500
`
`$2,000
`
`$1,500
`
`$1,000
`
`$500
`
`$0
`
`2008
`
`2009
`
`2010
`
`2008
`
`$600
`
`$500
`
`$400
`
`$300
`
`$200
`
`$100
`
`$0
`
`$2,500
`
`$2,000
`
`$1,500
`
`$1,000
`
`$500
`
`$0
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`North American Revenue
`2008–2010, by Quarter
`
`International Revenue
`2008–2010, by Quarter
`(In millions)
`
`$2,500
`
`$2,000
`
`$1,500
`
`$1,000
`
`$500
`
`$0
`
`2009
`
`2010
`
`2008
`
`2009
`
`2010
`
`International Revenue
`
`Industrial and Other Segment
`2008–2010, by Quarter
`(In millions)
`
`$300
`
`$250
`
`$200
`
`$150
`
`$100
`
`$50
`
`$0
`
`2010
`
`2008
`
`2009
`
`2010
`
`$430M
`
`investment in research
`and engineering in 2010
`
`32,136'
`
`the length of the longest
`extended reach well
`drilled in Saudi Arabia
`
`75
`
`number of separate
`hydraulic stimulations
`recorded in a 13 well-
`bore/30 day micro-
`seismic fracture
`monitoring survey
`
`geomarket win the drilling and formation evaluation contract for the Trym and Olsevar fields.
`The geomarket also won a large integrated contract for the Borgland Dolphin Consortium. Coiled
`tubing services from BJ Services have been successfully introduced to traditional Baker Hughes
`customers in Norway. In Continental Europe, Baker Hughes has become a major supplier in the
`growing geothermal and natural gas storage well markets.
`Baker Hughes built a stronger presence in the Russia Caspian region with the introduction of
`new technology; the acquisition of the second largest ESP service company in Western Siberia,
`Oilpump Services; and through collaboration with local drilling contractors.
`Net Income
`Industrial and Other Segment
`Our Africa business suffered from project delays in Algeria and Libya and contract losses
`2008–2010, by Quarter
`2008–2010, by Quarter
`in Angola. Bright spots included startup of operations in Ghana and Uganda, strong activity in
`(In millions)
`(In millions)
`$300
`$500
`Nigeria, a 22-well directional drilling contract in Libya, and a 10-year chemical services agreement
`in Angola.
`$250
`
`$400
`
`$200
`Middle East/Asia Pacific
`$300
`Revenue in the Middle East/Asia Pacific segment of $2.25 billion was up 16% compared to
`$150
`$200
`$1.94 billion in 2009, paced by activity in Saudi Arabia, start up of operations in Iraq, and modest
`$100
`but steady growth in the Asia Pacific region.
`$100
`$50
`In Saudi Arabia, operations are under way on a two-rig, coiled tubing drilling integrated
`$0
`$0
`operations project that is setting new records for horizontal drilling on coil. In addition, we intro-
`2008
`2010
`2009
`2008
`2010
`2009
`duced an ultra-slim EQUALIZER™ system to complete a 10,000-foot horizontal well drilled on
`coiled tubing. The Baker Hughes 4¾-inch MagTrak™ magnetic resonance system is being used
`for precise well placement while drilling water injection wells in the Manifa field where we drilled
`the longest extended reach well in Saudi Arabia. In 2010, Baker Hughes installed the FracPoint™
`system on our first multi-stage completion in the kingdom.
`Our operations in Iraq began during the year with workover projects and ESP installations.
`Net Income
`We opened our new base in Ramallah in June 2010. Early business development successes include
`2008–2010, by Quarter
`(In millions)
`a contract for 162 ESP systems for the Rumailah field, and a three-year technical agreement with
`$500
`South Oil Company to provide wireline data acquisition and logging services.
`Our Asia Pacific operations leveraged leading technology to make gains throughout the
`$400
`region. For example, in China our North Asia geomarket won a 77-well FracPoint™ contract to
`$300
`perform multi-stage, open hole completions in China’s emerging shale gas basins. Baker Hughes
`also won a critical well contract for PetroChina’s Tarim Oilfield Company for formation evaluation,
`$200
`completion, and artificial lift in deep, high pressure/high temperature wells.
`$100
`Focus on Profitability
`$0
`One of the challenges of the global reorganization was optimizing the new operating struc-
`2008
`2010
`2009
`ture to control cost and deliver acceptable margins, especially in regions outside North America.
`During 2010, we consolidated geomarkets to match market activity in the Africa, Latin America
`and Russia Caspian areas, reducing expatriate staff and taking a variety of cost-cutting measures.
`By the fourth quarter, our Eastern Hemisphere operations had achieved substantial margin
`improvement. International profit improvement and cost control will be primary areas of focus
`over the next several quarters.
`Our supply chain strategy is paying off, as we achieve efficiencies in manufacturing downhole
`tools and chemicals while leveraging our combined buying power to control procurement costs.
`We also are investing in manufacturing capacity in the Eastern Hemisphere to produce products
`in Asia and the Middle East, closer to our customers. Taken together, supply chain improvements
`are delivering recurring savings of $100 million per year.
`In addition, we are on target to achieve the expected cost efficiencies of $150 million per year
`from the combination with BJ Services.
`
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`I want to recognize the contributions of our 53,100 employees who so
`professionally serve our customers. Through their dedication we con-
`tinue to lead our industry segment in safety and have been recognized
`as leaders in innovation.
`
`Leveraging Opportunities
`The interest in unconventional gas development has spread from North America, and
`operators in Europe, China, Australia and Latin America have asked us to present our reservoir
`engineering, horizontal drilling and fracturing technology as they consider accessing shale
`gas resources.
`Offshore drilling, including deepwater activity, continues to increase, and Baker Hughes
`remains a leader in this market segment. Despite a slowdown in the Gulf of Mexico, demand for
`stimulation vessels has been strong. Our new Blue Dolphin and Blue Tarpon vessels bring state-of-
`the-art technology and the industry’s highest capacity to the market. As a result of the merger
`we now provide cementing services on 25% of the world’s offshore rigs.
`
`$2,500
`
`$2,000
`
`$1,500
`
`$1,000
`
`$500
`
`$0
`
`New Technology
`Baker Hughes continues to invest more than $430 million per year in research and
`International Revenue
`North American Revenue
`Industrial and Other Segment
`engineering, producing an array of new and improved technologies that make the company
`2008–2010, by Quarter
`2008–2010, by Quarter
`2008–2010, by Quarter
`(In millions)
`(In millions)
`(In millions)
`more competitive.
`$2,500
`$300
`For example, our new Kymera™ hybrid drill bit combines diamond and roller cone bit technol-
`ogies to drill difficult, variable formations. We have extended our AutoTrak™ line of automated
`$250
`$2,000
`drilling systems with versions for vertical wells and land-based applications with AutoTrak Curve.
`$200
`$1,500
`We continue to extend the range of coiled tubing drilling. Our Nautilus™ Ultra logging suite can
`$150
`acquire petrophysical data in wells with temperatures as high as 500°F. Our completion systems
`$1,000
`$100
`innovations include the slimhole EQUALIZER system, GeoForm – a newly commercialized well
`$500
`screen that conforms to the wellbore to improve sand control efficiency, and the FracPoint
`$50
`Premium multi-stage frac completion system. Our ESP systems are installed on the seabed in
`$0
`$0
`8,000 feet of water in the Gulf of Mexico, boosting oil production in the Perdido field.
`2010
`2009
`2009
`2008
`2010
`2009
`2008
`2010
`Baker Hughes also has focused on green technology. Using our BJ SmartCare™ program, our
`experts design and implement frac-fluid programs that minimize environmental impact during
`hydraulic fracturing.
`
`2008
`
`Outlook
`Looking ahead, we expect the economic recovery to create increased oil demand, which
`should support high oil prices and a sustained multi-year expansion of international spending.
`We expect North America land activity to remain strong as horizontal drilling and hydraulic
`fracturing activity continues to grow. While operators are shifting to liquid and oil reserves, we
`expect continued significant shale gas drilling, but we are carefully watching natural gas prices
`and their effect on rig activity.
`To help drive growth in 2011, we are planning annual capital expenditures of $2.3 to $2.7 bil-
`lion, compared to $1.5 billion in 2010. Much of the increase reflects the capital requirements of
`expanding our pressure pumping business.
`In closing, I want to recognize the contributions of our 53,100 employees who so profession-
`ally serve our customers. Through their dedication we continue to lead our industry segment in
`safety and have been recognized as leaders in innovation. With the reorganization now in place,
`the addition of BJ Services, and the slow but steady improvement in global economic conditions,
`2011 is off to a good start.
`
`Chad C. Deaton
`Chairman and Chief Executive Officer
`
`Net Income
`2008–2010, by Quarter
`(In millions)
`
`$500
`
`$400
`
`$300
`
`$200
`
`$100
`
`$0
`
`2008
`
`2009
`
`2010
`
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`
`Art Soucy,
`Vice President,
`Global Supply Chain
`
`Supply Chain
`
`The Global Supply Chain (GSC) was critical to Baker Hughes’ success
`in 2010. By combining seven supply chain functions and improving
`processes, the GSC team has driven substantial cost savings.
`
`Following the shift to a geographic operations structure, the seven divisional
`
`manufacturing functions were combined into a single Global Supply Chain (GSC)
`organization, with equipment manufacturing facilities grouped by hemisphere
`and the chemicals and fluids plants placed in a single unit.
`In addition, global procurement and transportation and logistics functions were
`established to leverage scale, drive process efficiencies and assure legal compliance.
`The GSC group also established an enterprise Sales and Operations Planning process to anticipate
`and meet the need for products on a global basis.
`During 2010, the GSC group broadened the geographic footprint of Baker Hughes’ supply
`chain with investments in manufacturing capability in Saudi Arabia, Dubai, Malaysia and Mexico,
`and the acquisition of lower-cost manufacturing companies in Thailand and China. In addition
`to adding in-house production capacity, the GSC group developed new suppliers in India, China,
`Malaysia, Russia, Thailand, Mexico and Singapore.
`Many of the “go forward” plants underwent a significant makeover as the GSC launched a
`major lean initiative to drive out waste and shorten lead times. For example, the large-diameter
`Tricone™ drill bit production line was moved from Belfast, Northern Ireland, to The Woodlands,
`Texas plant to increase bit manufacturing efficiency, while simultaneously reducing cost and
`lead times.
`Also during the year, the GSC strategic sourcing team reduced the number of suppliers across
`product lines to leverage purchasing power and achieve cost savings. This team continues to add
`value by standardizing and streamlining procurement practices.
`To reduce freight costs and transit times, the transportation and logistics team established
`a “hub and spoke” model. Working in coordination with each other, five strategically located
`hubs manage shipping of Baker Hughes materials and products to receiving locations (“spokes”)
`in their regions and have achieved substantial savings.
`More recently, the hub and spoke model also has been implemented for the worldwide repair
`and maintenance (R&M) organization. Five R&M hubs will become R&M centers of excellence for
`their territories and are expected to improve efficiency, enhance reliability, and increase field asset
`utilization around the world.
`During 2010, the GSC’s chemicals and fluids group began integrating the chemical portion of
`BJ Services’ supply chain into its global operation. The procurement and manufacturing functions
`for the remaining BJ Services product lines will be integrated into the GSC organization in 2011.
`Looking ahead, the GSC group will continue to optimize Baker Hughes’ global supply chain
`to deliver further cost savings and improve Baker Hughes’ competitive position.
`
`$100M
`
`annual savings expected
`from our Global Supply
`Chain in 2010, 2011
`and 2012
`
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`John Harris,
`President, Reservoir
`Development Services
`
`Reservoir
`
`The Reservoir Development Services group’s multi-disciplined expertise
`enables Baker Hughes to provide clients with reservoir advice and
`complete field development solutions.
`
`Making reservoir expertise a recognized strength at Baker Hughes was an
`
`important step in transforming the company for long-term growth. While
`Baker Hughes has long been a leader in wellbore-related technologies, our
`customers – especially national oil companies – also now expect us to provide
`reservoir advice along with products and services for field development.
`Beginning in 2008, Baker Hughes assembled a group of industry-leading
`consultancies and software firms to build broad reservoir competencies to meet this requirement.
`In 2010 these firms were more closely aligned with each other and with the Baker Hughes service
`organization through the formation of the Reservoir Development Services (RDS) group.
`Consultancies incorporated into the RDS group include: Gaffney, Cline & Associates (GCA),
`the oil & gas industry’s preeminent technical, commercial and management consulting firm;
`GeoMechanics International (GMI), the leading innovator in understanding the geomechanics of
`oil and gas reservoirs; RDS, a global subsurface, wells and field development consulting company;
`and Epic Consulting Services, a dynamic reservoir engineering firm with significant experience in
`heavy oil developments. In addition, the RDS group’s reservoir analysis capabilities are enhanced
`by commercial software offerings from Meyer & Associates, a well established developer of soft-
`ware for the hydraulic fracturing process; and JOA Oil & Gas, developer of JewelSuite™ software,
`an integrated reservoir modeling tool. With hundreds of experienced technical professionals, the
`RDS group’s services cover all aspects of the hydrocarbon life cycle including exploration, reservoir
`characterization, well engineering and operations, production technology, mid-stream facilities,
`refining, and reservoir evaluation, as well as commercial and strategic advice.
`With these capabilities, the RDS group is working with Baker Hughes geomarkets and product
`lines to develop reservoir-driven solutions to address major industry challenges like integrated field
`development, mature field redevelopment, production optimization, sand management, sub-salt
`reservoirs and unconventional oil and gas development.
`During 2010, RDS consultants provided reservoir support to Baker Hughes geomarkets and
`our integrated operations team, helping to obtain business, including projects in Canada, Mexico,
`Argentina, Russia, Turkmenistan, Africa and the Middle East. RDS experts also conducted joint
`workshops with Baker Hughes product line specialists to present Baker Hughes’ reservoir capabili-
`ties to key customers around the world.
`At the same time, the RDS group maintains its focus on external consulting and continues
`to provide broad-based technical, commercial and strategic advisory services to clients through
`RDS including Gaffney, Cline & Associates. This activity builds customer relationships and, where
`appropriate, it enables the Baker Hughes product lines to present technical solutions to asset
`managers early in the project cycle.
`
`408
`
`number of geoscientists,
`petroleum engineers and
`consulting professionals
`in RDS
`
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`
`Fred Toney,
`Vice President,
`Pressure Pumping
`US Land
`
`Pressure Pumping
`
`The acquisition of BJ Services filled a strategic gap in Baker Hughes’
`product portfolio. With the addition of BJ Services pressure
`pumping and coiled tubing services product lines, Baker
`Hughes can provide comprehensive solutions for wellbore
`construction and stimulation.
`
`T he combination of Baker Hughes and BJ Services coincides with a high volume
`
`of drilling activity directed at producing unconventional oil and gas in numerous
`basins in the United States and Canada. Horizontal drilling and hydraulic fracturing
`are typically used to develop unconventional shale resources, and the combined
`company is a leading provider of both technologies. Since the full combination
`of the two co