february 2012 george e. jones director of risk management 10200 bellaire blvd houston, tx 77072 risk...
TRANSCRIPT
February 2012
George E. Jones
Director of Risk Management
10200 Bellaire Blvd
Houston, TX 77072
Risk ManagementUniversity of Houston Energy Case Study
2FOR INTERNAL USE ONLY
Agenda Halliburton Company Overview What is “fracing” all about? Risk Management at Halliburton
– Organization– Objectives & Strategy– Linkages
Insurance Programs – Tactical Approach– Program Chart
Business Unit Support – Contract Review– Surety Bonds– Compliance Certificates
Claim Organization Appendix
– Insurance Programs – Purpose and Scope– Financial Performance
3FOR INTERNAL USE ONLY
Halliburton Global Franchise
CustomersFounded: EmployeesCorporate Headquarters
ResearchCenters
OperationalCountries2011
FASTFACTS
1919 Nearly70,000
HoustonDubai
National, International and Independent entities worldwide
1480
Halliburton Locations
Halliburton Headquarters
Halliburton Research Centers
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Halliburton Organization
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58%
12%
16%
14%
58%
42%
North America
International
North America
Increased service intensity driven by 59% increase in oil directed rig count targeting oil and liquids-rich plays.
Middle East / Asia Pacific
Shift to gas plays in the Middle East coupled with growing markets in Iraq, China, and Australia. Increased offshore activity in Asia Pac.
Europe / Africa / CIS
Increased share in deepwater East and West Africa while exploratory unconventional gas projects beginning in Europe.
Latin America
Leveraged deepwater and unconventional expertise for growth in Brazil, Argentina, Colombia and Mexico.
2011 Revenue Breakdown
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*Pro forma **Excludes certain charges
Outperforming the Competition
60
80
100
120
140
160
180 175
126
137
HAL SLB* BHI*
Total Revenue (Indexed)Q108 to Q411
Total Operating Income** (Indexed)Q108 to Q411
0
20
40
60
80
100
120
140
160
180
200
107
174
113
HAL SLB* BHI*
Q1 2008 = 100
4Q 111Q 08 4Q 09 4Q 111Q 08 4Q 09
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Source: International Energy Agency
World Oil Demand (MMb/d) OPEC Effective Spare Capacity (MMb/d)
2007 2008 2009 2010 2011 2012 2013 2014 20150
1
2
3
4
5
6
7
Supply/Demand Outlook Encouraging for Energy Service
Forecast
2007 2008 2009 2010 2011 2012 2013 2014 201582
84
86
88
90
92
94
Forecast
Increasing demand for liquids … … reducing the industry’s spare capacity
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Unconventionals Deepwater Mature Fields
Market Drivers in the Upcoming Cycle
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Tight GasShale GasCoalbed Methane
Unconventional Basins
Sources: EIA, “Worldwide Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States”, April 2011; ARI, December 2009; EPRC, December 2009
Continued Growth in Unconventionals
China US Argentina Mexico South Africa Australia Canada Libya Algeria Brazil Poland France
1,275
862774
681
485396 388
290 231 226 187 180
Technically Recoverable Shale Gas(Trillion Cubic Feet)
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CleanSuiteSM of Environmentally Friendly Technologies
CleanStream® Service Uses ultra-violet light to destroy bacteria
CleanWaveTM Water Treatment System High throughput, low energy use
water recycling system
CleanStimTM Fracturing Formulation Ingredients sourced exclusively
from the food industry
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Risk Management Organization Chart
George JonesDirector
Risk Management
Daniel GarciaManager
Global Claims
Virginia DillManager
Workers Comp Claims
Richard WhilesManager
Insurance Services
Deborah StaceyManager
Risk Management Programs
Bonita JohnsonSupervisorInsurance
Robert BushManager
Claims Info Systems
Angela HinojosaCoordinatorInsurance
Sandra MartinezSupervisor
Regional Claims
Helen BerhaneCoordinatorInsurance
TBDSpecialist
Workers Comp Claims
Tiffany BarnesSupervisorInsurance
Jack WestlundTeam LeadESIS Client
Services
Liability UnitClaim Specialists
(3)
Worker’s CompClaim
Representatives (3)
Admin UnitClaim Assistants
(3)
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Risk Management Objectives and Strategy
Objectives– Minimize total cost of risk (Retained Losses + Insurance Premium) through use of insurance
or retained risk programs• Insurance just one type of risk mitigation - typically last resort• Other risk mitigation includes Operational, Legal, Finance, etc.
– Ensure compliance with compulsory and contractual insurance requirements
Strategy– Insurance risk transfer employed for:
• Catastrophic Risks where feasible• Exposures where premiums are less than expected losses
– Maintain convenience factor coverages, e.g. claim servicing, etc– Retain uninsurable and mitigated risks– Maintain capability to provide proof of insurance compliance
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Risk Management Linkages Legal Department
– Contract review– Claim support
• Compliance with claim notification requirements• Review claim reserves• Supervise litigated claims
Global F&A / Real Estate– Information for underwriting process (revenue, payroll, property values, etc…)– With RM guidance, assist with local insurance policies
• Ad-hoc insurance placements• Compliance with “admitted insurance” laws• Claim support
Operations – Front-line knowledge of new risk activities (projects, business strategy, etc…)– Customer facing risk negotiations
Finance– Investor Relations –Information for insurance marketing– Corporate Finance –Financial analysis expertise– Treasury Operations –Financial guarantees for self-insurance programs
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Insurance Program – Tactical Approach
Align RM Program with HAL’s risk appetite– Present insurance plans to Treasurer/CFO for feedback and approval
Maintain strong relationships with underwriters – Leads to improved coverage terms– Facilitates claim resolution– Stabilizes market capacity available to HAL
Maintain highest underwriting security– Utilize rating information from intermediaries and rating agencies– Evaluate HAL’s aggregate exposure to underwriters across all programs – Approve any exceptions to ratings policy
Optimize insurance program renewals– Develop renewal strategies in collaboration with intermediaries for each program outlining key objectives – Verify key coverage terms are included prior to inception
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Insurance Program
Deductible Type of Coverage
Distribution of Insurers by A.M. Best Rating
Rating Exposure ($M) % A+ 712 29%
A 1,759 71% A- 6 0% Total 2,477 100%
Fiduciary Liability
AirCraft
VesselsWell
ControlOffshoreProperty
CargoCrime
Onshore Property
Side A DIC
D&O Liability
GL / AL / EL
Excess
Liability
Alliant Aon
Aon
McGriff
Alliant Alliant McGriff Alliant Aon McGriff Alliant
Broker / $Premium
Primary Casualty Program• GL, EL, WC, AL• 10M limit• 10M retention – GL,EL,AL• 2M retention – WC• Internal reserve for ultimate unpaid exposure• Collateralized to estimated exposure• ~80 locally admitted polices
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RM coordinates with Legal Department / Procurement for contract reviews– Legal Department contract reviews typically occur in CAS– Vendor reviews typically done via procurement rather than Legal Department– Any unusual / unapproved insurance language forwarded to RM for review
Guidelines – Given to Legal Department / Procurement which specify acceptable insurance language
• Guidelines include actual verbiage• Guidelines include rationale for changes that can be provided directly to the customer• Regular presentations made to Legal and Procurement by RM
Common principles for insurance qualifications– Insurance is intended to “support” indemnity and should not be a risk transfer mechanism – Vague provisions should be clarified to avoid taking on more risk than expected
Contract Management
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Surety Bonds—Q3 2011
Argentina
Venezuela276.3
Colombia
Mexico
U.S. Current Exposure to Surety Bonds / LC’s
Breakdown of HAL Surety Bond exposure– Performance (65%)– Labor (15%)– Court Appeal (6%)– Customs (5%)
Note: All KBR surety guarantees gone as of Q1 2011
HAL KBR TOTAL
Surety Bonds 1,044,351,153
Letters of Credit 573,345,000
TOTAL 1,617,057,153 639,000 1,617,696,153
Surety Utilization(millions)
Brazil
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Insurance Certificates—2,100 Outstanding as of Q2 2011
Document evidencing HAL’s insurance coverage– Contractual requirement
• Customer: Insurance to support indemnity structure including 1st party and liability• Lease: Insurance for non-owned property in HAL’s care and liability
– Jurisdictional requirement• Compulsory• Licensing• Permitting
U.S.1,186
International882
Vessels62
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Claim Management Organization
Services– Process and manage all insurance program claims
• Utilize onsite TPA, ESIS, for primary claims• Liaise with insurers and brokers on risk transfer programs• Leverage insurer relationships to maximize claim recoveries
– Support Legal Department claim investigation/management– Provide risk analysis & loss prevention support– Manage production of third party actuarial opinion over the future development of losses
• Work with F&A to coordinate booking of appropriate reserves
Technology– Maintain risk management & claim reporting systems (Risk Advantage, HRM)– Provide underwriting and compliance information– Management reporting
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Appendix
Insurance Programs– Primary Casualty– Excess Liability– Property– D&O– Fiduciary– Crime– Vessels– Well Control– Cargo
2011 Financial Performance
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Insurance Programs
Primary Casualtyo Purpose and Scope
– Comprised of Workers’ Compensation, Employer’s Liability, General Liability and Auto Liability– Statutory and contractual compliance– Retain risks which cannot be efficiently transferred to insurers– Provide claim services for losses within retention – Coverage territory is global
• Includes local programs in 37 countries
Excess Liabilityo Purpose and Scope
– Provides worldwide coverage for bodily injury and property damage liability – Necessary for compliance with clients' contractual requirements– Provides coverage excess of the following primary programs:
• Employer's Liability • General Liability • Automobile Liability • Aircraft Liability• Protection & Indemnity (Vessel Liability)
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Insurance Programs
Property o Purpose and Scope
– Coverage against physical loss or damage to onshore property worldwide• Covers equipment at onshore wellsites up to $15mm per occurrence• Covers losses due to Terrorism and Political Violence
־ Does not cover true “political risk” e.g. nationalization, expropriation, confiscation, deprivation– Coverage for business interruption resulting from physical damage to covered properties– Applies to facilities owned by Halliburton and property of others for which Halliburton has assumed liability– Provides compliance with contractual lease requirements
D&Oo Purpose and Scope
– Coverage for personal liability of Ds and Os relating to their actions in their capacity as a director or officer– Coverage for Ds and Os while acting on charitable company boards if at request of Company– Coverage for cost of defense for alleged wrongful acts– Coverage to Halliburton against securities claims and indemnity obligations to the directors and officers– Includes local programs in 34 countries
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Insurance Programs
Fiduciary Liabilityo Purpose and Scope
– Covers all Company sponsored benefit plans– Provides liability coverage for alleged failure to prudently manage benefit plans– Provides coverage for errors and omissions committed in benefit plan administration– Indemnifies against personal liability of fiduciaries– Covers Company for indemnifiable claims
Crimeo Purpose and Scope
– Coverage for loss arising due to employee theft of money or property– Coverage for theft of money by a non-employee, including theft via computer or funds transfer fraud– Component of coverage required for compliance with ERISA
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Insurance Programs
Vesselso Purpose and Scope
– Covers physical damage to owned vessels and equipment on chartered vessels– Covers bodily injury and property damage to third parties associated with vessel– Covers removal of wreck and debris – Certification for statutory and contractual obligations
Well Controlo Purpose and Scope
– Covers physical damage to owned offshore platforms and pipelines– Covers control of well, redrill, pollution liability and 3rd party property– Certification for statutory and contractual obligations
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Insurance Programs
Cargoo Purpose and Scope
– Covers physical loss or damage to goods in commercial transit – Coverage provided for Company property and property the Company is obligated to insure for another party– Provides access to claim adjusting network required in CIF sales– Provides bonding services for impounded cargo– Contractual compliance with international equipment sales– Statutory compliance in some jurisdictions
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Geographic Results
Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 2009 2010 2011($ Millions)
Revenue
North America $1,683 $1,259 $1,285 $1,435 $1,704 $2,111 $2,381 $2,631 $2,982 $3,445 $3,876 $4,110 $5,662 $8,827 $14,413
Latin America 556 544 542 539 495 567 568 599 612 687 806 877 2,181 2,229 2,982
Europe / Africa / CIS 968 971 1,012 997 920 981 947 1,066 911 969 991 1,085 3,948 3,914 3,956
Middle East / Asia 700 720 749 715 642 728 769 864 777 834 875 992 2,884 3,003 3,478
Total $3,907 $3,494 $3,588 $3,686 $3,761 $4,387 $4,665 $5,160 $5,282 $5,935 $6,548 $7,064 $14,675 $17,973 $24,829
Operating Income
North America $230 $80 $37 $103 $230 $441 $573 $632 $732 $997 $1,135 $1,118 $450 $1,876 $3,982
Latin America 108 106 97 48 46 89 77 78 76 81 137 170 359 290 464
Europe / Africa / CIS 168 155 201 171 130 148 139 167 (4) 68 66 109 695 584 239
Middle East / Asia 161 186 188 160 102 137 91 165 86 96 99 170 695 495 451
Corporate and Other (51) (51) (49) (54) (59) (53) (62) (62) (76) (81) (105) (137) (205) (236) (399)
Total $616 $476 $474 $428 $449 $762 $818 $980 $814 $1,161 $1,332 $1,430 $1,994 $3,009 $4,737
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Segment Results
Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 2009 2010 2011($ Millions)Revenue
Completion and Production $2,028 $1,752 $1,821 $1,818 $1,964 $2,393 $2,655 $2,985 $3,172 $3,618 $4,025 $4,328 $7,419 $9,997 $15,143
Drilling and Evaluation 1,879 1,742 1,767 1,868 1,797 1,994 2,010 2,175 2,110 2,317 2,523 2,736 7,256 7,976 9,686
Total $3,907 $3,494 $3,588 $3,686 $3,761 $4,387 $4,665 $5,160 $5,282 $5,935 $6,548 $7,064 $14,675 $17,973 $24,829
Operating Income
Completion and Production $363 $243 $240 $170 $238 $497 $609 $688 $660 $918 $1,068 $1,087 $1,016 $2,032 $3,733
Drilling and Evaluation 304 284 283 312 270 318 271 354 230 324 369 480 1,183 1,213 1,403
Corporate and Other (51) (51) (49) (54) (59) (53) (62) (62) (76) (81) (105) (137) (205) (236) (399)
Total $616 $476 $474 $428 $449 $762 $818 $980 $814 $1,161 $1,332 $1,430 $1,994 $3,009 $4,737
CAPEX 518 432 440 474 404 451 557 657 704 719 741 789 1,864 2,069 2,953
DDA 215 224 238 254 261 272 284 302 320 331 340 368 931 1,119 1,359