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Interview

with Desmond Kong, Country VP, Halliburton China

05.06.2012 / Energyboardroom

Mr. Kong, in our conversations with Mr. Xu of Schlumberger China, and Mr. Dolman of Baker Hughes China, each country manager respectively commented on his company’s notable historical presence in this market. Schlumberger entered China in the 1980s at the invitation of the Chinese Vice Premier; Baker Hughes entered yet earlier, in the 1970s, at the invitation of Deng Xiaoping—China’s ex-Paramount Leader himself. Halliburton too has an illustrious history in this region, having provided all of the well completion equipment for the first offshore multi-well platform in China in 1984. Can you explicate in more detail Halliburton’s history and growth in the China market?

Halliburton’s involvement in China goes back further than 1984. The company first became involved in the country in the early 1980s when we purchased GSI Geophysical Services and merged it into the organization to form Halliburton Geophysical International.

Halliburton had been involved with China onshore for a long time before completing the first well offshore in 1984. In the early 1980s, we had quite a significant seismic services business in China and that led to our first integrated offering, a project in the south of the country for an NOC. That was our first integrated project and the largest at the time for offshore oil and gas.

We have gone from strength to strength to the present day where we have a good mix of services and direct equipment sales to the country.

You took on your role in 2007, which was one year after Halliburton split its activities into Western and Eastern hemispheres, and the same year that the company further divided its business into two divisions: Completion and Production, and Drilling and Evaluation. How successful has this approach been for the company here in this GeoMarket?

Around that time, China was identified as one of the five focus countries in the company. The other countries included were Brazil, Russia, India and Mexico the UK. When we established our Eastern headquarters in Dubai, we increased our focus on the eastern hemisphere in general. The company’s growth in the eastern hemisphere had been slower than in North America, and our aim was to bring a greater focus on the international market. We wanted to bring our offices and senior executives closer to the customers in the east. This in turn brings faster decision making to the EH time zone – decisions that may be more EH-specific.

The division of the company into drilling and evaluation, and completions and production, consolidated our strengths. This decision made it more aligned with the customers requirements and also brought our complementary services together convenient to create customized solutions for our customers. Again, faster decision making process with the customer’s needs in mind.

Despite Halliburton’s increasing emphasis on the East and its establishment of a second headquarters in Dubai, the company generated 58% of 2011 revenues in North America. Do you see this figure continuing to shift East? What will be the role of the China market, and when will this territory make a truly meaningful impact on your overall result?

China is beginning to make an impact. We are strategizing with regard to the government’s energy requirements for the country. This country’s energy consumption has increased significantly—even exponentially—and there is not enough energy to support the requirements yet. A lot of resources have been focused on internal development, in spite of investment overseas.

Halliburton is a pioneer of fracking technology. However, each of the major global oilfield service companies is now carefully eyeing China’s unconventionals sector. Meanwhile, domestic companies are also very rapidly positioning themselves to be ready for what some see as an impending boom in this niche. How will Halliburton differentiate itself?

Unconventionals are the big topic of conversation around the world at present. Not all shale formations are the same. They require different solutions; unconventional solutions are not restricted to hydraulic fracturing . This is where we bring the differentiation. In the U.S. we have more than 60 years’ of accumulated experience and innovations in this field. We have made breakthroughs and we are the market leader. We are the first service company to perform unconventional hydrualic fracturing in the majority of the key unconventional markets around the globe. We are bringing that experience, as well as those technologies. Therefore, we do not have to undergo a very steep learning curve. We can help China develop and exploit unconventionals in as short a time as possible.

In Malaysia, Halliburton has set up a shale technical center in partnership with the Malaysian NOC Petronas. This is an interesting move that raises two questions about the China market: First, is Halliburton’s China operation marked by similarly deep collaboration with China’s NOCs? Second, to what degree does the company integrate China into its scientific efforts?

As I already mentioned, there is more to unconventionals than just hydraulic fracturing; there is a lot of science, engineering and learning. We come in with the know-how that we have accumulated over many years in North America. Leveraging on the experience gained in the process of application of science, engineering and learning in North American unconventional basins to the Chinese unconventional basins, we bring the differentiating values to the proving up of shale reserves and later to the exploitation of this energy resource.

Halliburton has been having such deep collaboration you have mentioned with China NOC’s for many years. Some of these were ground breaking collaboration at the time of these projects, incorporating science and technology to the high quality delivery.

It’s through such cooperation between Halliburton and the NOC’s that the solutions and methodology to identify and develop the Chinese unconventionals will take on a shorter learning curve.

Do you plan on making a similar infrastructural commitment in China—perhaps developing a major technical or research hub here?

We have annual investment plans. It does not necessarily come in one big spike in a certain year, however, you may have noticed we are building and expanding on our infrastructures in several regions in China. Some of which supports our business growth.

Experts cite many logistical problems with shale development in China. For example, some of the reserves are in densely populated village areas; furthermore, in some places there may not be enough water for the fracking process. Will it be feasible to commercialize shale by 2015 as the government intends?

Everything is feasible if the government decides that it will sponsor or support it. For instance, in addition to the challenges you mentioned, there is also lack of midstream infrastructure. However, the historical response of the government is well known; that infrastructure will be built and it will be built in good time to support their targets.

Regarding water, it is a resource that Halliburton has experience managing; I believe we will be able to leverage our capabilities therein to create new solutions for the Chinese market.

The timing to the shale commercial feasibility is very much dependent on the initial proving up of the high expectations on the unconventional reserves. It has to be done correctly and by that I mean spending the appropriate amount of time and money to understand the shale formation. Educated patience and perseverance may be the virtue. I don’t think there is any shortcut.

Do you believe that you will you be able to develop something unique here and then export it to the company’s other global markets?

China has major basins, so something unique will have to be developed. Whether it is applicable to other markets remains to be seen. Something certainly will have to be customized or developed to be consistent with the requirements of the basins in China and I’m sure some of these will find application in some other parts of the world.

Looking at the domestic competition more closely, clearly you are a leader in terms of technology but the local companies are catching up. Traditionally, western companies have sent their technologies here to China—now we have Chinese companies selling frack-packs to the North American market. This is a role-reversal. What kind of technology window do international companies like Halliburton have over these local companies? How long can you remain a leader?

I do not think I can define a window. As a leader, we continue to invest in innovation and R&D, but technology changes and you must keep moving forward constantly.

Personally, I do not worry about other companies. They are our customers and our partners and our competitors at the same time. It is a unique relationship and I believe we have a place for each other.

In 2010, you were a graduate of Halliburton’s President’s Leadership Excellence Program. How does this program reflect Halliburton’s overall approach to corporate culture and human resources development?

I was on the alternative energy project and we spent one year talking to a lot of people about other types of energy besides hydrocarbons, besides fossil fuels. It is great to know that as an organization we are looking at green energy, at safe energy, at environmentally-friendly energy.

In terms of human resources development, Halliburton is very special. The company treats people very well and the critical asset for the company is its people. We are greatly diversified, both in terms of equality in gender, and diversity in nationalities. At the same time, localization is very strong, giving local people many opportunities to develop their careers. We have many well-developed and mature programs for different levels of employees.

How well has Halliburton been able to integrate its culture here in the Chinese market?

We have a lot of Chinese employees, whether here or elsewhere, and this helps to create the bridge between Chinese and Western cultures. It has been working well. We try to enable each other to understand our different requirements and idiosyncrasies.

What is your final message to the international readers of Oil & Gas Financial Journal?

China needs energy, and will probably not be self-sufficient for the next 30 or 40 years. Consumption and demand will increase.

What do they need to be able to do this? They need experience and they need technology; they need assistance. At Halliburton, we are in a great position as we are the leaders in unconventionals—and in deepwater, which will come later. We bring innovation and reliability, packaged together with the diversity of employees that we have and the implications for the community in terms of creating jobs. We will ensure that we perform our work in a safe and environmentally sound manner. When jobs are created jobs we make hiring locally a priority We will be part of the community.

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