Risk Management
University of HoustonFebruary 2010
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Risk Management
Q&A
Business Overview & Results
Strategy
page - 3
Halliburton Overview
Provides a broad suite of products and services to help explore for and produce oil and gas
Two business segments- Drilling & Evaluation- Completion & Production
2009 sales of $14.7 billion
Equity market capitalization of over $30 billion, as of Jan. 20, 2010
2009 Return on capital employed of 11.5%(1)
50,000+ employees in approximately 70 countries
(1) Return on capital employed defined as: (net income plus after-tax interest) / (average shareholders’ equity + average total debt)
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Completion and Production
Production Enhancement
Cementing
Completion Tools
Drilling and Evaluation
Sperry
Wireline
Baroid
Security DBS Drill
Bits
Software & Asset
Solutions
Year Ended December 31, 2008
(in millions)
Testing & Subsea
2009 Division Revenue
49%
$7,256$7,419
51%
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Middle East / Asia Pacific
Shift to gas plays in the Middle East coupled with growing markets in India and China
North America
Continued development of unconventional markets, horizontal drilling trends, and deepwater
Europe / Africa / CIS
Deep/Harsh water environment with expanding North and West African markets
Latin America
Leveraging deepwater expertise, integrated projects, and expansion in non-traditional markets
39%61%North AmericaInternational
20%20%
26%26%
15%15%
39%39%
2009 Regional Revenue
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Risk Management
Q&A
Business Overview & Results
Strategy
page - 7
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
-12 12 36 60 84 108
1997-1999 Cycle
Number of weeks from peak
2008Cycle2008Cycle
International Rig Count (Indexed)
Global Energy Situation
Weak petroleum demand
Commodity price volatility and uncertainty
Customer pressure on service pricing
Contract re-tenders at lower price points
7
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Real U. S. Natural Gas Prices
10
100
1000
1922 1925 1928 1931 1934 1937 1940 1943 1946 1949 1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006
Real Gas Price 2009 $'s
Three cycles are evident over the last 80+ years Three uplegs: average duration 13 years, average price increase 292% Three downlegs: average duration 18 years, average price decrease 40%
* Average wellhead price as reported by EIA, these prices were regulated from 1954 to 1978
27 years
Prices down 62%
No demand data
13 years
Prices up 111%
Demand up 167%
8 years
Prices down 18%
Demand up 59%
13 years
Prices up 496%
Demand down 20%
12 yearsPrices down 61%Demand up 32%
13 years
Prices up 268%
Demand up 5%
Current spot price
Rea
l U
.S.
Wel
lhea
d G
as P
rice
* (L
og
no
rmal
Sca
le)
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North America vs International
Spectrum of extremes
North America- Efficient (immediate response to commodity price changes)- Transactional- Extreme volatility
International- Longer terms- Less transactional
- Dampens extremes
9
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Halliburton Long-Term Strategy
Continue developing talent and business leadership
Anticipate North America structural change
Invest in strategic growth areas
Continue technology and capital investment
Leverage packaged services
Horizontal Rigs 48% of Total U.S. Rig Count*
* Baker Hughes Rig Count
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
J-91 J-92 J-93 J-94 J-95 J-96 J-97 J-98 J-99 J-00 J-01 J-02 J-03 J-04 J-05 J-06 J-07 J-08 J-09 J-10
Vertical & Directional Horizontal
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Near-Term Tactics
Protect market position
Lower input costs
Maintain financial flexibility
Live within cash flow
Protect “A” credit rating
Focus on return on capital employed
25%23%
13%
25%
21%19%
7%
36%
2006 2007 2008 2009 YTD June
ROCE = Net Income before after-tax interest annualized divided by average capital employed (shareholders’ equity + total debt)
RO
CE
* Average of SLB, BHI, WFT, SII
HAL
Peer Average*
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Growing Market Leadership*
* Based on Spears’ and Associates Sept., 2009 Oilfield Market Report and internal company data
Market Share Change
Product / Service Offering Market Position from 2008
Directional drilling 2 UP
Logging-while-drilling 2 UP
Logging 2 UP
Drilling & Completion fluids 2 UP
Drill bits 3 UP
Data interpretation 1 UP
Stimulation 1 UP
Cementing 1 UP
Completions 2 UP
Coiled tubing services 2 UP
Overall 2 UP
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Financial Headline Issues
No exposure to auction-rate securities or variable-rate demand notes
No subprime mortgage exposure
No off balance sheet financing other than disclosed leases
No ratings triggers
- Except revolver pricing grid and deferred compensation plan
No speculative trading
Manageable pension liability of ~$220 million, as of 12/31/2009
Halliburton Stock Fund closed, as of 12/31/2009
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Risk Management
Q&A
Business Overview & Results
Strategy
page - 15
Risk Management Organization
Functional report to Treasury
Insurance Programs Insurance and self-insurance procurement Fronting programs and captives Brokerage relationships
Global Claims Occupational injury administration Insurance recovery (all lines) Claim services vendor relationships
Risk Management Information Systems Data Management Financial and executive reporting
Risk Management Accounting Budget control Cost allocation Reserve management
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Risk Management Responsibilities
Identify exposures to risk of loss
Support SEC risk compliance
Determine desired means of managing exposures to risk of loss
Obtain insurance required by and in accordance with applicable laws
Negotiate customer insurance terms and assure compliance
Support pursuit of new business opportunities
Support due diligence for acquisitions and mergers
Provide surety services
Maximize insurance assets through efficient claim recovery
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Insurance Program
10M 500K 2M Nil 500K 1M 250K 50K 2.5M
Deductible Type of Coverage
5M 1M
D&OLiability
Hartford
Max ReAWACChartis
HCC
RSUIFreedom Specialty
ArchACEACE
EnduranceHCCRLI
AWACTravelers
AxisArchACE
Side A DIC
Fiduciary Liability
HCCTravelers
ELU
AxisCNA
WorkComp
Statutory Limits
Ace
AirCraft
VariousUSAIG
Vessels
PD PerSchedule P & I 5MLloyds
WellControl
Various limits
Lloyds
OffshoreProperty
PerSchedule
Lloyds
Cargo
15M PerShipment
Ace
Summary of InsuranceAs of 12/21/09
(not to scale)ACE (Bermuda)
Lloyds/Liberty Mutual
XL/Argo
AISLIC
Lloyds
Arch / XL / AWAC
GL / AL / EL
Crime
RLI
AIG
ExcessLiability
Llo
yds
Onshore Property
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Enterprise Risk Management
ERM sponsored at highest levels of Halliburton
Direct and independent reporting to Audit Committee of BOD
Advisory committees comprised of all senior corporate officers
Sustainable monitoring plans for risks and controls
Cultural permeation
Methods, framework, and processes utilized to manage risks by taking an integrated and holistic view of the various uncertainties involved across the organization. It is the process whereby an organization optimizes the manner in which it controls risks.
Required by SEC and NYSE
Evaluated and rated by rating agencies based on effectiveness of program.
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Enterprise Risk Management 1.0
ERM 1.0: Complete
Halliburton’s Enterprise Risk Management group has completed an in-depth identification of enterprise-level risks
Assessments performed for 8 major operational and functional areas
30 risk categories, based on commonality of triggers and controls
Each risk category assigned to Sr. Executive with reporting responsibility to Audit Committee
2006 2007 2008 20092005 2010
SeniorLeadershipEstablished
Formal Strategy for
Sustainability
Assessments Updated and
Validated
Monitoring Processes
Established
Identification of Leading Risk
Indicators
Develop & Refine Risk Assessment Processes
ERM 1.0 ERM 2.0
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Enterprise Risk Management Leadership
Board of DirectorsHalliburton Senior Management
ERM Steering Committee
Chairman: Sr VP & TreasurerDirector Risk Management
VP Internal Audit & ControlsChief Ethics & Compliance Officer
Operations Advisory Committee
President Global Business LinesPresident Western HemispherePresident Eastern HemisphereSr Director Intellectual Asset
ManagementSr Director Operations Finance
Corporate Advisory Committee
VP & ControllerEVP Administration
VP and Deputy General CounselCIO
VP Supply ChainVP Tax
ERM Working Team
Risk Management, Internal Controls, Treasury, Audit, Law
Subject Matter Experts (“SME”)
Determined as needed
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Enterprise Risk Management 2.0
ERM 2.0: In-Progress
Identification of Leading Risk Indicators
Can data can be gathered which is predictive of changing risk severity?
What 3rd party info could be used to buttress the Halliburton data?
Can the data be assimilated into a meaningful management tool?
ALP Project Scope
Pilot project involving one or two Risk Categories
Interview / poll organization to identify appropriate quantitative data
Access to Sr. Finance Management
Opportunity to interact with management across organization
Utilize 3rd party providers to augment data gathered within Halliburton
Construct dashboard identifying potential risk / control changes
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Enterprise Risk Management – New Exposures
Formalized process for assessment of new exposures during 2009
New Risk Activity incorporated into ERM Tool & monitoring plan established
New Risk Activity incorporated into ERM Tool & monitoring plan established
IdentifyIdentify
Develop working document assessing risks and controls with Legal review prior to distribution
Develop working document assessing risks and controls with Legal review prior to distribution
EvaluateEvaluate ValidateValidate IncorporateIncorporate
Risk Activity to be analyzed by ERM Working Team and Subject Matter Experts
Risk Activity to be analyzed by ERM Working Team and Subject Matter Experts
Working document distributed to Advisory Committees for validation
Working document distributed to Advisory Committees for validation
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XX. Poorly designed / implemented compensation policies and practices
Description of Risk: Designing and implementing compensation policies and practices which are reasonably likely to have a material negative impact on Halliburton.
Principal Risk Area• Non-Compliance with reporting requirements leading to restatement, fines or penalties levied by SEC or DOJ.• Improperly aligned compensation incentives leading to increased shareholder risk• Poor capital allocation choices due to misalignment of short / long term success factors• Manipulative conduct by executive management
Strategic Controls• Board of Directors Compensation Committee • Centralized Compensation Organization with global oversight • Accounting organization including External Reporting group• Disclosure Committee• Global policies and practices
Existing Controls • External Reporting group’s coordinated reporting process that includes multiple reviews by several levels of
management• Disclosure Committee review of Company accounts, exposures and draft quarterly and annual reports along
with the proxy• Contract Approval System with management review of capital allocation choices• Policy 3-90020 Executive Compensation Administration
Risk RatingWithout controls, significance is _______ likelihood is _______.With controls, significance is _______ likelihood is _______.
New Risk Exposure Analysis Example
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Health, Safety & Environment (“HSE”)
Health & Safety Strategy- Educate and Infuse Risk Management within the organization- Review Global Standards and HSE Processes- Involve Global HSE Team in the review of workplace Health and Safety data - Develop systematic approach to managing our Employee's Driving Behavior*
Environmental & Sustainable Development Strategy- Maintain regulatory compliance- Consistent waste management practices- Meet the increasing demand for environmentally responsible chemicals- Minimize resource consumption and operational costs- Improve Control of returned products- Develop a consistent message of "sustainability" internally and externally
* Description of Journey Management Overview in Appendix
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Recordable Vehicle Incident Rate – All Vehicles2009 Year End
Health, Safety and Environment Statistics
* No industry comparables available
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Employee Total Recordable Incident Rate2009 Year End
Health, Safety and Environment Statistics
* International Association of Drilling Contractors
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Employee Lost Time Incident Rate 2009 Year End
Health, Safety and Environment Statistics
* International Association of Drilling Contractors
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Additional Discussion
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Appendix
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Journey Management Program
Purpose – Mitigate Risk and Eliminate Unnecessary Trips
- Individual Trip Risk Assessment
- Determine Driver Competency and Fit for Duty
- Management Approval Based on Trip Risk Level
- Follow Up Notification for Overdue Arrivals
Early Results
- Deployed program in April 2009• 20 U.S. Districts and 2 Russian locations fully deployed
- Deployed location results• 102,223 total journeys tracked
• Vehicle Incident Rate before deployment = 0.27
• Vehicle Incident Rate after deployment = 0.16
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HSE Recognitions – Q3 and Q4 2009
Halliburton receives 2010 Diversity Leader Award from Profiles in Diversity Journal as one of top 38 U.S. based companies
Kuwait Oil Company and Chevron award Halliburton with “A-Grade Contractor” designation for incident-free HSE performance
Halliburton Malaysia’s Manufacturing Facility celebrates 2 years of injury-free for 214 employees
Chevron Upstream Europe awards 3 UK PSLs (Baroid, Sperry and Cementing) with “Grade A” ranking for HSE performance and management systems
TOTAL recognizes Congo Slickline Group for 3500 days without a lost time incident
ExxonMobil recognizes Halliburton contribution on 4 projects receiving ExxonMobil’s “Nobody Gets Hurt” award
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