Halliburton: Leading the World in Energy Services

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Halliburton Leading the World in Energy
Services

• By
• Adam Buchanan
• John Cannon
• Craig Emmert
• Joshua Smith

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Table Of Contents

• Craig Emmert
• Resources
• Cost of production
• Substitution effect

• Adam Buchanan
• Labor Demand
• Profit Maximization

• Wes Cannon
• History
• Opportunity Costs
• Specialization

• Joshua Smith
• Government Intervention
• Company Stock
• Type of Market

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An Overview of Halliburton

• The company itself consists of 5 major operating
  groups. These groups are
• Drilling and Formation Evaluation
• Fluids
• Production Optimization
• Landmark and Other Energy Services
• Engineering and Construction Group (KBR)

• The company provides and incorporates products
  and services from the exploration and development
  of oil, through the production, operations,
  maintenance, conversion and refining of its
  product, to infrastructures and abandonment of
  sites.

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The History of Halliburton

• Erle P. Halliburton established the New Method
  Oil Well Cementing Company in Oklahoma in 1919.

• During the time of Erles death in 1957, the
  company had grown to operating in 22 states and
  20 foreign countries. Five years later,
  Halliburton acquires Brown Root. Brown Root
  is recognized as the first corporation to build
  an offshore platform.

• The M.W. Kellogg Company, founded in 1900, is
  responsible for the process of refining and
  processing of petroleum. Both companies merged
  to form Kellogg Brown Root.

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• Today it employs more than 100,000 people in
  over 120 countries.

• It continues to be involved in the US Space
  Program.

• The company has a long-standing history of
  military support. It has built war ships and
  naval air stations.

• Halliburton was recently awarded contracts for
  the rebuilding of post-war Iraqs oil fields. It
  was estimated in March 2003 the project would
  cost 489.3 million.

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Opportunity Costs

• Opportunity cost is the cost that is incurred
  when one option is chosen over the other.

• Opportunity Costs can be both tangible and
  intangible.

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Halliburtons Opportunity Costs

• Liquid Natural Gas as opposed to Petroleum

• Building a refinery or and offshore oil rig

• Devoting resources to certain contracts (I.e.
  Government vs. Private Owners)

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Specialization

• Specialization in large contracts (especially
  government no bid contracts
• Development fall through and implementation of a
  technology
• Eliminates competition through specialization and
  utilization of subsidiaries such as Kellogg and
  Brown

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Resources

• Land
• Labor
• Capital

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Resources (cont)

• Land-
• Factories- have facilities in 120 countries
• oil

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Resources (cont)

• Labor-
• 100,000 employees worldwide
• Working around the clock

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Resources (cont)

• Capital -
• Factories
• Production equipment
• Automobiles, machines ect...

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Production Costs

• Total Cost of production is the total opportunity
  cost to the owners
• Everything they must give up
• to get a profit
• Explicit and implicit

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Explicit Costs

• Firms actually pay out money
• Example Mangers Salaries
• Hourly Workers wages
• Buying of Raw Materials

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Implicit Costs

• No money actually changes hands
• Examples Opportunity cost of land being owned by
  the company
• Time invested

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Substitution Effect

• Halliburton Vs. The Betchel Group
• Both supply very similar services and products
• Can substitute one for the other

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Substitution Effect

• Example- Both charge 10,000 for steel drill bit
• Betchel group lowers price to 9,000
• Quantity Demanded for Betchel Group

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Substitution effect

• price of substitute
• Demand for Halliburton

P D2
D1 Q


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Labor Demand

• What is labor demand? How does it affect
  Halliburton?
• Much like the supply and demand curves for goods
  and services, Labor demand is affected by several
  factors, that of which are

• Technology

• Wage Rate

• Market Price

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Factors that affect the labor demand curve

• Price as demand for labor increases, so does
  price of labor
• Technology technology used with labor to
  produce is known as a compliment, technology used
  to replace labor is a substitute.
• Change in the price of an input if the price
  increases in an input, such as metal in the
  production of drills, the cost is passed on to
  labor
• Change in the number of firms as more firms
  enter, the curve shifts rightward if more firms
  leave, leftward.

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Profit Maximization

• In order to maximize profits, a firm wishes to
  reach a probable profit under the constraint of
  cost.
• By comparing Marginal Cost and Revenue, firms
  such as Halliburton are able to determine where
  they stand in terms of profit.

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Using Total Revenue and Cost along with Marginal
Revenue and Cost

• When mathematically represented, cost continually
  rises while revenue peaks and falls at a
  midpoint.
• This is known as the law of diminishing returns.

• Through profit maximization, the ideal output is
  6.

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Graphical Representation
Marginal Cost and Revenue
Total Cost and Revenue
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Government Intervention

• Patent - a temporary grant of monopoly rights to
  use or sell new technology
• Sole right to use, produce or sell invention
• Generally last 20 years

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Government Intervention (Contd)

• About 150 patents granted between 1997 and 2001
• Approximately 2000 U.S. Patents and more than
  1,950 international patents
• Differentiated Pressure Actuated Vent Assembly
  and Time Delay Pressure activated Firing head
  economic impact of over 603 million over past 20
  years

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Company Stock

• A stock market is a market were stocks are bought
  and sold
• Stock is the equity ownership of a corporation
  through the purchase of shares

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Company Stock (cont)

• Earnings per share after tax 12 months earning
  divided by the number of shares outstanding
• Shares Outstanding total number of shares
  issued by a company
• Authorized Shares total number of shares that a
  company may issue
• Market Capitalization value placed on a company
  by multiplying the current price of shares by the
  current number of listed shares

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Company Stock Continued

• Current Stock info for Halliburton
• Earnings per share -1.88
• Market Cap 13.28 billion
• Number of Authorized shares numbers from 600
  million to 1 billion
• Halliburton currently has about 440 million
  shares outstanding

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Type of Market

• Monopoly a market with one seller of a good or
  service that has no close substitutes

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Type of Market (Continued)

• Has a monopoly over all reconstruction contracts
  in Iraq
• Under scrutiny because Dick Cheney formerly
  headed up the corporation

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What we have learned today

• Opportunity Costs Faced by Halliburton
• Specialization utilized by Halliburton
• Halliburtons Factors of Production, and the
  costs that accompany these factors
• Substitution costs Halliburton faces
• Halliburtons role in the Labor Market
• Profit Maximization
• Government intervention upon Halliburton
• Halliburtons current standing in the stock
  market

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• Questions?