The COO of Halliburton Sits Down With The Motley Fool

*Editor's note - An earlier version of this transcript referred to the Enhanced Single Trip Multi-Zone Completion technology as "ESTMC." This has since been corrected to "ESTMZ."

Halliburton (HAL -0.34%) is a multinational company that offers energy industry products and services, from data to production output. The company was founded in 1919 and has a long history with the energy industry. In fact, Halliburton was the first company to frack a well in the United States over 60 years ago.

Recently, current Halliburton COO and Executive VP Jeff Miller sat down with The Motley Fool's own Taylor Muckerman to discuss the energy industry.

In the following video, the two of them explore the oil and gas industry, honing in on the key features of Halliburton's work in domestic and international markets. Miller also details some of the current practices and new technology of Halliburton in achieving increased efficiency in mature fields, shale fields, and deepwater markets.

Click on the video below for more.

Taylor Muckerman: Hey Fools, Taylor Muckerman here with the Chief Operating Officer of Halliburton, Jeff Miller. Jeff, thanks for stopping by and taking the time to speak with us today. I know you’re busy with the Offshore Technology Conference here in Houston.

Not the biggest news, though, with the first round in the drafts -- Houston coming up -- but about 100,000 people are here to talk about deep water and the offshore industry.

We’ll get that in a little bit, but first I want to talk about your time here with Halliburton and what you’ve seen change over the last several years. I know you’ve had multiple different positions, and are now arriving at the Chief Operating Officer.

Jeff Miller: Thanks, Taylor. Yes, I’ve been with Halliburton about 17 years. I’ve seen a lot of change with Halliburton, particularly the growth of our business over that period of time.

We’ve entered new markets around the world, really the uptake in the frack business over that time has been tremendous, but a couple things have stayed consistent through that time as well.

The first is just the execution culture at Halliburton, which attracted me in the very beginning. Then secondly, we operate a lot like a family around Halliburton -- and I say that in all respects; we work hard, we work well together, sometimes we argue, but in the end we always come out with a collective answer.

Muckerman: You talk about fracking -- that’s where you guys got your start, about 65 years ago -- the first frack ever in the United States officially.

But one of the key tenets that you are focusing on is mature fields, and that’s an area that most people might not associate directly with Halliburton, because of the fracking, but that’s one of your three key tenets. I think it’s a vitally important area, because there’s only about 20-40% recoverable oil out of these wells, so you can go in and use some EOR -- Enhanced Oil Recovery -- methods.

Do you want to talk about some of the things that Halliburton’s doing to help enhance the recovery from these mature fields, especially in the United States right now?

Miller: Certainly. The reason we’re interested in mature fields is because they’re fast-growing. This is a segment of the market where about 60% of the fields in the world are mature today. Because of that, it creates a tremendous opportunity for Halliburton.

The other thing that we’re seeing is that those fields are being returned, in large part, either to their national oil company owners, or they’re falling off the radar. So, what we’re able to do is use a lot of existing technology that we have, and apply it to new situations.

We’re able to, in an integrated fashion, manage the fields or bring all the different technology that hasn’t been applied in those fields, to bear and give them new life.

Muckerman: Is that predominantly in the United States, or are you seeing that a lot in the international sphere as well?

Miller: We’re actually seeing more of that, maybe, internationally than we are here in the U.S. The U.S. tends to be dominated today by unconventionals, but everywhere else in the world ... we can pick Malaysia as a place, Mexico is another, but really throughout Latin America and a lot of these older -- I shouldn’t say “older” markets, but markets that have been developed for a long time -- these opportunities are everywhere.

Muckerman: Is this more oil or natural gas, or is it a blend of each, when you’re going into these mature fields and helping further develop?

Miller: It’s predominantly oil. It’s resources that are in the ground that, again, need to be developed or produced.

Muckerman: You mentioned the unconventional plays, especially in North America -- really, the pioneer in fracking and shale resources right now, and Halliburton in there at the very beginning. A lot of your revenue does come from North America and the unconventional side, so could you talk a little bit about what you’ve seen here in the United States, and why we’ve been so incredibly fast to develop these shale resources, versus international peers.

Miller: Great question. There are some very unique things about the U.S. market, the first being, you always have to have great rocks. We’ve got great rocks in the U.S.

But then that’s followed up with infrastructure, and of course we’ve got 75 years’ worth of pipeline infrastructure in the U.S. that makes a market for the gas -- and the oil, for that matter.

Then finally, the service industry in the U.S. is fabulous, and of course we’ve invested in it for a long time, so it’s a big part of our business. But the knowhow and the ability to execute is available here in the U.S. as well.

When all that combines together, we’re able to deliver a market that looks like the U.S. We don’t’ see all of those, necessarily, in the rest of the markets around the world. They may have good rocks, but then they may not have the infrastructure to deliver, or there could be political challenges that keep those things from being delivered.

All those things come together, here in the U.S.

Muckerman: It’s fascinating to see some companies in the U.S. have more pipelines than entire countries around the world, so that obviously lends very nicely to us.

But one issue we’ve seen in the United States with fracking is the reliance on fresh water, and Halliburton has taken great steps to tackle this issue with not only water recycling, but trying to reduce the amount of water used, from the very onset of these frack wells. Could you talk about some of the products, or when you decided to start focusing on this as a key issue?

Miller: We’ve been focused on water for probably five years. We look at the entire value chain around hydraulic fracturing or, really, unconventionals.

We looked at a range of things, including how we lower our clients’ cost per BOE, how we help manage the logistics for our clients, and then of course that includes water, and any challenges around water.

Yes, we look at a range of ways to treat the water, some of them being mechanical -- you hear about our Clean Wave technology and some things like that, that are used to recycle the water. But probably the more important question around water is chemistry. It’s how to use all sources of water -- whether fresh or, let’s say, produced, or briny, brackish type water -- in that process. This is water that would be discarded otherwise.

The full range of what we do around water is to make the overall process more efficient.

Muckerman: It is very expensive for these companies to truck the water in, truck the wastewater out. One company you’ve targeted is Nuverra Environmental Services, about a year ago. I was wondering if that partnership is still seeing some nice inroads? I know they were working a lot in the Bakken shale, prior to this partnership that was announced a little while ago.

Miller: Yes, we partner with companies where it makes sense. Again, it’s integral to our water strategy, as to how we work with the partners in the local markets to either transport water or be a part of what we do.

Water has been clearly a successful -- recycling projects in the Bakken -- it’s very important there as it is, really everywhere.

Muckerman: I noticed Texas and the Bakken definitely need a little bit more help that way because in Marcellus you have all the injection wells where they can place that water. This is an area where you’ve seen other companies fail, so I like the fact that Halliburton has been able to really succeed in developing this technology.

Then, to tie it back into the week with the Offshore Technology Conference, deep water is a nice focus for Halliburton, which is a shareholder I’m very happy about because I’m a big believer in the long-term prospects of deep water.

A lot of analysts are saying 2014 and 2015 might be a struggling market for the drillers, but I think this is a 10-15-20 year market, and to see Halliburton get in there was pretty interesting to me. Coming from the Gulf of Mexico with Halliburton, I was wondering if you could provide some insights into how Halliburton has really developed over the last several years, in that aspect?

Miller: We’ve always called the market in deep water “slow and steady,” so what we’re seeing today really isn’t a surprise to us. For Halliburton’s business, we’d expect to see continued solid growth over the next, as you described it, 10-15 years -- and I actually see it over the next couple years, as well.

Our commitment at Halliburton has been to outgrow that market by 25%, which we’ve certainly done over the last three years, and expect to continue doing that. The two key things that operators worry about in deep water are reducing uncertainty, and increasing efficiency, so that’s where we focused our strategy, doing those two things.

Muckerman: What are some of the products or services that you might provide, that might increase that efficiency or reduce the variables, as you mentioned?

Miller: A good example of that would be our ESTMZ, which is called an Enhanced Single Trip Multi-Zone Completion. I know it’s a mouthful!

Muckerman: I’ll stick with the acronym!

Miller: ESTMZ. It’s great technology. What it really does is, if you think about a stacked play -- in deep water there are several producing zones. In order to complete those, historically an operator would have to go into the well each time, and complete each zone independently, taking a lot of time.

Our technology allows clients to, in one trip, put a tool in the hole that has sleeves that give them access to each one of those zones. Now, how that saves client money is it makes it go faster, so there’s only a single trip, going in the well and completing the entire well.

It’s also a very reliable piece of kit. It’s proven itself to be very effective that way.

Muckerman: To tie it back to unconventionals, talking about efficiency with the producers, your Frack of the Future initiative has been geared toward that, using less horsepower to produce the same amount of oil.

Could you maybe talk about some of the products that you’re offering, that you believe have really made Halliburton successful in that fracking initiative here in the States?

Miller: Absolutely. To begin with, our view of unconventionals is, Halliburton delivers the lowest cost per barrel of oil equivalent. That takes three key components, the first being surface efficiency -- which is like our Frack of the Future technology, as well as our HAL advantage in things we’ve done in the back office and logistics -- but also chemistry.

Custom chemistry and sub-surface insight are the other two legs of that stool, if you will, around how we help our client be successful in unconventionals.

Muckerman: Is this a good sales pitch, internationally? I know you have participated in some of the first wells in Argentina, and China as well. I’m sure there are other countries with the same record, but those two jump out at me because they have some of the largest supposed shale resources for oil and natural gas.

Could you talk about how you’ve approached that international scene? Because a lot of those are national oil companies; you’re not dealing with the larger integrateds, or the independent EMPs here in the States, but dealing with the YPF or some Chinese national companies as well.

Miller: We take the exact same technology overseas -- the same things that have been successful here in the U.S. We’ve got the structure and the processes in place at Halliburton to allow us to deliver that same efficiency, anywhere in the world.

Muckerman: You’ve been opening offices all around the world, pretty rapidly lately. I was wondering if maybe there were some areas that you have plans to open up some operations, that maybe haven’t been recorded yet?

Miller: We’ve made a significant investment over the last probably three years, in our international footprint, which you see in our numbers today, in terms of the growth.

I won’t necessarily tip you off to the next location, but what I will tell you is that we’ve opened about 50 facilities in 30 countries over the last three years, and spent about $1 billion doing it, so we are ecstatic about that footprint, and how we grow into that.

Muckerman: Results have been showing that, as it appears you guys have been taking market share from some peers internationally. That’s great to see because about a 50/50 split is, from what I can imagine, U.S. versus international. Great to see, because U.S. is really ramping up right now, and international is, I think well on its way.

Could you talk about some constraints? You talked about pipelines internationally, but water usage? I think that probably is going to translate pretty well internationally, because even though we do have water scarcity in some regions, we have a little bit better natural resources when it comes to that.

Is there anything else you might see internationally as a constraint to developing shale resources like we have here in the United States?

Miller: We talked about one, which is water. We’re talking about fracturing in places that there’s really no water -- think about the Middle East.

Throughout the Middle East, there’s an incredible demand for gas and unconventionals throughout the Middle East today, so the real technology, in my view, is how we frack with produced water, for example, which historically we haven’t been able to use.

That brings us right back into our wheelhouse, which is custom chemistry. I use that word a lot, but it’s how we solve problems with chemistry, and the ability to use water in the interior of Australia, for example, where there’s no water, or it’s very difficult to get water. Same thing in the Middle East.

That’s a real competitive advantage for us at Halliburton.

Muckerman: Are there any other competitive advantages that you see, just right off the bat, that you want people to know about, if they don’t already?

Miller: Yes, I would like everyone to know about how we deliver the lowest cost per BOE in unconventionals. We do it, again, with custom chemistry, surface efficiency, and subsurface insight -- which is critical, all three of those, to how we help customers be successful.

We’ve invested in all three of those. Our newest rollout is CYPHER, which we call it; it’s our Seismic-to-Stimulation process, really gives our clients insight into unconventional shales, which is a brand new area.

Conventional technology and understanding of how the oil moves around in shales basically is so different, you throw the old stuff out the window. We really have a solution to that, today.

Muckerman: It’s great to see the adaptability, because it seems like not only is every country different, but every well in each country is different. Taking the technology and reformulating it to each company’s needs is something that I think you have done really well.

I just want to thank you for the time today. I know it’s a busy week, and I don’t want to take up too much more of your time, but Jeff, I want to thank you very much.

Miller: Thanks, Taylor.

Muckerman: It’s a pleasure talking with you and covering Halliburton. I know my guys here enjoy covering them as well, so we’ll continue to do that. They’re a Fool favorite!

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