risk management university of houston march 2011
TRANSCRIPT
Risk ManagementUniversity of Houston
March 2011
page - 2
Q&A
Business Overview & 2011 Results
Risk Management
page - 3
Halliburton Overview
Provides a broad suite of products and services to help explore for and produce oil and gas
2010 sales of $18 billion
Equity market capitalization of over $37 billion, as of December 31, 2010
2010 return on capital employed of 14%(1)
Three business segments- Drilling & Evaluation
- Completion & Production
- Consulting & Project Management
(1) Return on capital employed defined as: (net income attributable to company) / (total shareholders’ equity + total debt)
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Why Halliburton?
CustomersFounded: EmployeesCorporate Headquarters
ResearchCenters
OperationalCountries2010
FASTFACTS
1919 50,000+ HoustonDubai
National,International and Independent entities worldwide
1470+
Halliburton Locations
Halliburton Headquarters
Halliburton Research Centers
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Drilling and Evaluation
Drilling and Evaluation
Consultingand Project
Management
Completion and Production
Landmark Sperry DrillingTesting
and SubseaDrill Bits
and Services BaroidWireline and Perforating
Product Service Line (PSL)
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Completion and Production
Drilling and Evaluation
Consultingand Project
Management
Completion and Production
CementingCompletion
ToolsProduction
EnhancementBoots & Coots
Well Intervention
Product Service Line (PSL)
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Consulting and Project Management
Drilling and Evaluation
Consultingand Project
Management
Completion and Production
ConsultingProject
Management
Product Service Line (PSL)
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$10.0 56%
$8.0 44%
Year Ended December 31, 2008
(in millions)
Completion and Production
Production Enhancement
Cementing
Completion Tools
Drilling and Evaluation
Sperry
Wireline
Baroid
Security DBS Drill
Bits
Software & Asset
Solutions
Testing & Subsea
Halliburton Divisions – 2010 Revenue
($ billions)
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49%
12%
22%
17%
49%51%
Middle East / Asia
North America
Europe / Africa / CIS
Latin America
North America
International
Global Operations – 2010 Revenue
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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
10
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2010 Acquisitions – Risk Management Due Diligence
Boots & Coots, Inc. – Well intervention services and pressure control products- Location: International- Employees: 700
Professional Wireline Rentals LLC – Various wellhead and subsurface rental equip- Location: U.S. - Employees: 300
Wellbore Energy Solutions, Inc. – Wellbore cleaning services- Location: U.S.- Employees: 30
Diamond Rotating Heads Inc. – Low pressure rotating control heads for drilling- Location: U.S.- Employees: 14
Evans Engineering, Inc. – Downhole rental jars- Location: U.S.- Employees: 17
Permedia Research Group – Modeling software and services- Location: Canada- Employees: 20
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Q&A
Business Overview & Results
Risk Management
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Enterprise Risk Management
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. ERM sponsored at highest levels of Halliburton Direct and independent reporting to Audit Committee of BOD Sustainable monitoring plans for risks and controls Cultural permeation
2006 2007 2008 20092005 2010
Initial RiskAssessments
Completed
SeniorLeadershipEstablished
Formal StrategyFor
Sustainability
AssessmentsUpdated &Validated
MonitoringProcesses
EstablishedGlobal
Awareness
Develop & RefineRisk Assessment
Processes
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ERM Leadership
Board of DirectorsHalliburton Senior Management
RM Committee
Chairman: Sr VP & TreasurerDirector Risk Management
VP Internal Audit & ControlsChief Ethics & Compliance Officer
Operations Advisory Committee
President Global Business LinesPresident Western HemispherePresident Eastern Hemisphere
Sr Director Intellectual Asset ManagementSr Director Operations Finance
Corporate Advisory Committee
VP & ControllerEVP Administration
VP and Deputy General CounselCIO
VP Supply ChainVP Tax
Working Team
Risk Management, Internal Controls, Treasury, Audit, Law
Subject Matter Experts (“SME”)
Determined as needed
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Risk Management Organization
Functional reporting to Treasury and CFO 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 Determine desired means of managing exposures to risk of loss Support SEC risk compliance 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 Purchasing Philosophy
Utilize insurance risk transfer only in the following circumstances: Required by law or contract and fronting is not possible/practicable Catastrophic exposures, i.e. materially adverse impact to company Premium is lower than expected losses
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Insurance Program
D&OLiability
Hartford
Max ReAWACHCCAIG
RSUIAIGArchXL
ACEEndurance
HCCRLI
AWACHartford
AIGArchACE
Side A DIC
Fiduciary Liability
HCCAIG
ELU
AxisCNA
WorkComp
Statutory Limits
Ace
AirCraft
USAIG
Vessels
LloydsCrime
AIG
WellControl
Lloyds
OffshoreProperty
Lloyds
Cargo
Ace
Onshore Property
AIG
/ Z
uri
ch /
AC
ESw
iss
Re
Lex
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Lib
erty
/ Z
uri
chA
WA
C
Llo
yds
Llo
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Mu
nic
h R
e / A
rch
AW
AC
Deductible Type of Coverage
Summary of Insurance
Excess Liability
ACE (Bermuda)
Lloyds Liberty Mutual
XL (Bermuda)
AISLIC
Lloyds
Arch / XL / Allied
GL / AL / EL
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Case study - Cargo Risk
Thousands of shipments annually to over 100 countries CIF sales require third party insurer Maximum value any one shipment $15mm 5 year average loss approximately $2.2mm
Average includes 2010 loss of $3mm in single shipment Loss ratio exceeding 100% for last 5 years Expected renewal premium $2.5mm
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Additional Discussion