WEBVTT 00:00:00.000 --> 00:00:02.660 Welcome back to the Deep Dive. We are pulling 00:00:02.660 --> 00:00:05.280 a complex corporate giant out of the ground today. 00:00:05.379 --> 00:00:07.339 Oh, really are. We are cracking open the history, 00:00:07.440 --> 00:00:10.019 the strategy, and what I think is a massive internal 00:00:10.019 --> 00:00:13.960 pivot of Baker Hughes Company. And when you hear 00:00:13.960 --> 00:00:16.059 that name, you likely picture the rugged world 00:00:16.059 --> 00:00:19.219 of, you know, deep oil and gas drilling. And 00:00:19.219 --> 00:00:21.199 you would be right. For the most part. But the 00:00:21.199 --> 00:00:24.199 modern strategic map of this company looks radically 00:00:24.199 --> 00:00:26.660 different from its legacy. That's it. That's 00:00:26.660 --> 00:00:29.379 the core mission of this Deep Dive. We're going 00:00:29.379 --> 00:00:32.399 to trace the century -plus history of this global 00:00:32.399 --> 00:00:35.439 energy technology powerhouse. Right, and analyze 00:00:35.439 --> 00:00:40.679 how constant, often aggressive mergers and acquisitions 00:00:40.679 --> 00:00:42.979 built its current identity. And most importantly, 00:00:43.079 --> 00:00:45.880 I think, understand its dual organizational focus. 00:00:46.159 --> 00:00:48.240 Exactly. It's split between the traditional oil 00:00:48.240 --> 00:00:51.820 services and this unprecedented push into new 00:00:51.820 --> 00:00:53.880 energy technologies like carbon capture, hydrogen, 00:00:54.140 --> 00:00:56.729 and even geothermal. Exactly. So this isn't just 00:00:56.729 --> 00:00:59.609 a corporate history lesson. This is a blueprint 00:00:59.609 --> 00:01:02.810 for corporate adaptation on a truly immense scale. 00:01:03.130 --> 00:01:05.150 It really is. Okay, so let's unpack this with 00:01:05.150 --> 00:01:07.450 some quick context. We're looking at a Fortune 00:01:07.450 --> 00:01:09.689 500 company. It's co -headquartered in Houston, 00:01:09.849 --> 00:01:12.230 Texas. The heart of the oil patch. And London, 00:01:12.329 --> 00:01:15.349 UK, which I think reflects its global and increasingly 00:01:15.349 --> 00:01:18.150 European energy transition focus. That's a great 00:01:18.150 --> 00:01:20.430 point. And it's a major component of both the 00:01:20.430 --> 00:01:23.750 NASDAQ 100 and the S &P 500. And you have to 00:01:23.750 --> 00:01:26.109 appreciate the sheer scale of the operation we're 00:01:26.109 --> 00:01:29.150 discussing here. Absolutely. For 2024, the company 00:01:29.150 --> 00:01:32.530 recorded a revenue of U .S. $27 .83 billion. 00:01:32.430 --> 00:01:36.469 billion. Wow. And they employ approximately 57 00:01:36.469 --> 00:01:39.569 ,000 people globally. They're operating facilities 00:01:39.569 --> 00:01:42.450 and service locations in over 120 countries. 00:01:42.689 --> 00:01:45.469 So everywhere. Basically everywhere, stretching 00:01:45.469 --> 00:01:48.250 across every major hydrocarbon and renewable 00:01:48.250 --> 00:01:50.689 energy basin from the North Sea to the Middle 00:01:50.689 --> 00:01:53.730 East, Australia to the Gulf of Mexico. A company 00:01:53.730 --> 00:01:56.390 this large doesn't change direction easily. So 00:01:56.390 --> 00:01:58.590 this is a true strategic shift we're talking 00:01:58.590 --> 00:02:00.689 about. It has to be, which is why the roots are 00:02:00.689 --> 00:02:02.760 so important. Right. Before Baker Hughes was 00:02:02.760 --> 00:02:05.239 Baker Hughes, there were two distinct corporate 00:02:05.239 --> 00:02:08.699 empires, each founded on a single brilliant mechanical 00:02:08.699 --> 00:02:11.219 innovation. Yeah. We have to start between, what, 00:02:11.259 --> 00:02:14.400 1907 and 1987. That's when these two separate 00:02:14.400 --> 00:02:17.199 giants were just revolutionizing how we accessed 00:02:17.199 --> 00:02:19.759 underground energy. And it's fascinating how 00:02:19.759 --> 00:02:23.060 complementary their original expertise was. It 00:02:23.060 --> 00:02:26.379 really is. The eventual modern company was born 00:02:26.379 --> 00:02:29.120 from the union of two really distinct specialties. 00:02:29.360 --> 00:02:32.419 One was mastering the sheer mechanical act of 00:02:32.419 --> 00:02:36.159 drilling the hole. Okay. And the other was perfecting 00:02:36.159 --> 00:02:38.419 the science of completion and production. You 00:02:38.419 --> 00:02:40.849 know, making the well -bore secure and getting 00:02:40.849 --> 00:02:43.050 the fluid to flow efficiently. Two sides of the 00:02:43.050 --> 00:02:45.569 same coin, really. Exactly. So let's start with 00:02:45.569 --> 00:02:48.509 the Hughes Tool Company, founded in 1908. We 00:02:48.509 --> 00:02:50.610 all know the name Hughes, right? Mostly because 00:02:50.610 --> 00:02:53.389 of Howard Hughes Jr. The famous aviator, filmmaker, 00:02:53.830 --> 00:02:57.449 the eccentric billionaire. Right. But the actual 00:02:57.449 --> 00:02:59.650 foundational genius, it came from his father, 00:02:59.810 --> 00:03:02.430 Howard R. Hughes Sr., working with his partner, 00:03:02.629 --> 00:03:05.569 Walter Bonona Sharp. And that foundational invention, 00:03:05.870 --> 00:03:07.810 the reason Hughes is still a household name in 00:03:07.810 --> 00:03:10.090 the drilling sector, was the two -cone drill 00:03:10.090 --> 00:03:12.849 bit. So what was so special about that? I mean, 00:03:12.870 --> 00:03:15.969 what were they using before? Well, before 1908, 00:03:16.110 --> 00:03:18.169 when you drilled for oil, especially with those 00:03:18.169 --> 00:03:20.930 early rotary rigs, you used what were called 00:03:20.930 --> 00:03:23.990 fishtail bits. Fishtail bits, okay. Yeah, they 00:03:23.990 --> 00:03:26.569 were essentially sharp pieces of steel that just 00:03:26.569 --> 00:03:29.050 scraped the rock. They worked okay, you know, 00:03:29.050 --> 00:03:31.949 in soft sedimentary formations. But when you 00:03:31.949 --> 00:03:35.430 hit hard rock -like igneous or dense limestone, 00:03:35.710 --> 00:03:37.849 which you often find when you're trying to access 00:03:37.849 --> 00:03:40.849 deeper, older reservoirs, they just failed. They 00:03:40.849 --> 00:03:43.710 just stopped. They stopped. The drillers either 00:03:43.710 --> 00:03:47.569 had to give up or switch to the much, much slower 00:03:47.569 --> 00:03:51.389 percussive cable tool method. So the two -cone 00:03:51.389 --> 00:03:53.490 bit changed the fundamental physics of drilling. 00:03:53.729 --> 00:03:56.710 Completely. Instead of scraping, Hughes and Sharp 00:03:56.710 --> 00:03:59.289 designed two rotating cones with hardened teeth. 00:03:59.629 --> 00:04:01.750 and they were positioned to roll across the bottom 00:04:01.750 --> 00:04:03.330 of the hole. So they're crushing, not scraping. 00:04:03.629 --> 00:04:05.909 They're shearing and crushing the rock simultaneously. 00:04:06.430 --> 00:04:08.389 This allowed rotary drilling to tackle those 00:04:08.389 --> 00:04:10.550 deeper, harder formations that were previously 00:04:10.550 --> 00:04:13.490 inaccessible. It unlocked vast new oil reserves 00:04:13.490 --> 00:04:16.089 across the entire globe. The impact must have 00:04:16.089 --> 00:04:18.509 been immediate. It was immediate and massive. 00:04:18.610 --> 00:04:22.970 It transformed drilling from a geographical gamble 00:04:22.970 --> 00:04:25.829 into a viable deep -earth engineering project. 00:04:26.230 --> 00:04:28.529 And the origin story is it's pure industrial 00:04:28.529 --> 00:04:31.129 folklore. You have to tell the anecdote of the 00:04:31.129 --> 00:04:33.610 Goose Creek secret in Texas. It is cinematic, 00:04:33.730 --> 00:04:36.389 isn't it? Hughes Sr. was paranoid about protecting 00:04:36.389 --> 00:04:38.370 his intellectual property. And for good reason. 00:04:38.490 --> 00:04:40.949 For very good reason. The technology was revolutionary. 00:04:41.449 --> 00:04:44.470 So he conducted the first two tests on a drilling 00:04:44.470 --> 00:04:47.029 rig in Goose Creek. And he'd physically request 00:04:47.029 --> 00:04:49.529 the entire drilling crew to leave the area. No 00:04:49.529 --> 00:04:51.970 way! Brought the prototype bit out of a locked 00:04:51.970 --> 00:04:54.470 wooden box and conducted the operation in total 00:04:54.470 --> 00:04:57.089 privacy with only his trusted associates. So 00:04:57.089 --> 00:04:59.189 what happened? Well, the first run was not without 00:04:59.189 --> 00:05:01.810 drama. The drill pipe actually twisted off, which 00:05:01.810 --> 00:05:04.250 kind of highlights the massive forces at play 00:05:04.250 --> 00:05:06.610 here. Sure. But the second test was an unqualified, 00:05:06.689 --> 00:05:09.629 spectacular success. It demonstrated the bit 00:05:09.629 --> 00:05:12.050 could just chew through rock that had previously 00:05:12.050 --> 00:05:14.730 stopped drilling cold. And that led to the patent. 00:05:14.970 --> 00:05:17.009 It led to the founding of the Sharp Hughes Tool 00:05:17.009 --> 00:05:20.069 Company in 1909, and the patent was granted to 00:05:20.069 --> 00:05:23.470 Hughes on August 10, 1909. And the scale started 00:05:23.470 --> 00:05:26.269 very small, as most great industrial firms do. 00:05:26.620 --> 00:05:29.779 Tiny. Their first dedicated manufacturing shop 00:05:29.779 --> 00:05:33.560 was just a 20 foot by 40 foot rented space. And 00:05:33.560 --> 00:05:37.519 then in 1912. Sharp passed away. Right. And Hughes 00:05:37.519 --> 00:05:40.439 Sr. bought out his partner's share. The company 00:05:40.439 --> 00:05:43.019 was officially renamed Hughes Tool Company in 00:05:43.019 --> 00:05:45.720 1915. This is where the narrative thread gets 00:05:45.720 --> 00:05:49.040 complicated. Very. Hughes Sr. died unexpectedly 00:05:49.040 --> 00:05:52.439 in 1924, and the company was inherited by his 00:05:52.439 --> 00:05:55.220 son, Howard Hughes Jr., who was just 19 at the 00:05:55.220 --> 00:05:58.620 time. And the junior Hughes was, let's say, famously 00:05:58.620 --> 00:06:01.560 uninterested in manufacturing tools. Not at all. 00:06:01.600 --> 00:06:04.620 His passions were in aviation, film production. 00:06:04.720 --> 00:06:08.100 and ultimately a reclusive life. So who ran the 00:06:08.100 --> 00:06:09.959 company? I mean who kept the lights on? It's 00:06:09.959 --> 00:06:12.019 a great example of the technical expertise and 00:06:12.019 --> 00:06:13.939 management depth that existed independent of 00:06:13.939 --> 00:06:16.740 the owners. Astute managers in Houston, particularly 00:06:16.740 --> 00:06:19.339 Fred W. Ayers and Maynard Ellsworth Montrose, 00:06:19.579 --> 00:06:22.300 they kept the company growing. So they were the 00:06:22.300 --> 00:06:25.279 ones who insisted on continued R &D and international 00:06:25.279 --> 00:06:28.160 expansion. They turned the company into a cash 00:06:28.160 --> 00:06:31.079 machine that, you know, fueled Hughes Jr.'s increasingly 00:06:31.079 --> 00:06:33.300 expensive hobbies. And they kept the intellectual 00:06:33.300 --> 00:06:35.959 property flowing. Constantly. The two -cone bit 00:06:35.959 --> 00:06:38.819 was great, but they kept improving. In 1933, 00:06:39.160 --> 00:06:42.100 they introduced the tricone drill bit. It refined 00:06:42.100 --> 00:06:44.500 the original concept, spread the load, and just 00:06:44.500 --> 00:06:47.339 ensured a smoother operation. And then came the 00:06:47.339 --> 00:06:50.920 really big leap in efficiency in 1959. The self 00:06:50.920 --> 00:06:53.680 -lubricating, sealed -bearing rock bits. Yes. 00:06:54.319 --> 00:06:57.160 That detail about the sealed bearings is so critical 00:06:57.160 --> 00:06:59.980 for you to understand. Before that, the bearings 00:06:59.980 --> 00:07:02.079 on the cones would rapidly wear out because of 00:07:02.079 --> 00:07:04.220 the abrasive drilling mud and high heat. Right. 00:07:04.319 --> 00:07:06.699 And when the bearings failed, the bit was useless. 00:07:06.819 --> 00:07:09.399 So you had to stop drilling, pull the entire 00:07:09.399 --> 00:07:11.439 string of pipe out of the hole, which could take 00:07:11.439 --> 00:07:14.240 hours or even a full day on a deep well, just 00:07:14.240 --> 00:07:16.439 to replace the bit. It's what the industry calls 00:07:16.439 --> 00:07:19.240 non -productive time, and it's incredibly expensive. 00:07:19.600 --> 00:07:22.220 So sealed bearings dramatically extended the 00:07:22.220 --> 00:07:24.600 bit's life, reducing that non -productive time 00:07:24.600 --> 00:07:27.660 and just cutting costs tremendously. Precisely. 00:07:27.660 --> 00:07:30.079 And they were pioneers in the science of efficient 00:07:30.079 --> 00:07:33.040 drilling, not just the tools themselves. That's 00:07:33.040 --> 00:07:35.100 right. They opened an enlarged engineering and 00:07:35.100 --> 00:07:38.540 research laboratory in 1958. It had advanced 00:07:38.540 --> 00:07:41.079 instruments like a direct reading spectrometer. 00:07:41.259 --> 00:07:43.939 And they published the industry's first comprehensive 00:07:43.939 --> 00:07:46.800 guides to efficient drilling practices in 1960. 00:07:47.160 --> 00:07:48.800 So they transitioned from just selling hardware 00:07:48.800 --> 00:07:52.100 to selling an engineered solution. Exactly. And 00:07:52.100 --> 00:07:55.259 then in the 1970s, Hughes Tool began its acquisition 00:07:55.259 --> 00:07:59.040 spree. In 1978, they acquired Brown Oil Tools, 00:07:59.379 --> 00:08:03.019 which had been around since 1929. patented the 00:08:03.019 --> 00:08:06.670 first liner hanger in 1937. Let's pause on the 00:08:06.670 --> 00:08:08.250 liner hanger for a moment because this is an 00:08:08.250 --> 00:08:10.589 essential completion technology. It really is. 00:08:10.769 --> 00:08:13.790 So when you drill a deep well, you continuously 00:08:13.790 --> 00:08:16.750 run casing pipe down the hole to prevent the 00:08:16.750 --> 00:08:19.310 wellbore from collapsing. Okay. But running that 00:08:19.310 --> 00:08:21.029 pipe all the way back to the surface becomes 00:08:21.029 --> 00:08:23.850 incredibly expensive and heavy. A liner hanger 00:08:23.850 --> 00:08:26.589 allows you to hang a new, shorter string of casing 00:08:26.589 --> 00:08:28.990 aligner from the bottom of the previous larger 00:08:28.990 --> 00:08:31.490 string. It saves time, material, and structural 00:08:31.490 --> 00:08:33.649 weight. Yes, which is particularly important 00:08:33.649 --> 00:08:36.590 for offshore platforms. So by acquiring Brown, 00:08:36.789 --> 00:08:38.769 Hughes bought critical completion expertise. 00:08:39.250 --> 00:08:42.070 They also expanded into drilling fluids, or mud. 00:08:42.289 --> 00:08:46.610 In 1979, Hughes' tool acquired oil -based ink, 00:08:46.750 --> 00:08:50.259 or OBI. And they were pioneers in specialty drilling 00:08:50.259 --> 00:08:53.179 fluid additives. They famously introduced black 00:08:53.179 --> 00:08:56.679 magic SFT in 1949, a product still sold today. 00:08:56.919 --> 00:08:59.279 And what did that do? This additive was used 00:08:59.279 --> 00:09:01.720 to free pipe when it got stuck in the hole, which 00:09:01.720 --> 00:09:03.879 is a very common and very costly operational 00:09:03.879 --> 00:09:07.299 issue. So Hughes was moving beyond just the bit 00:09:07.299 --> 00:09:10.200 and into the entire downhole ecosystem. Okay, 00:09:10.240 --> 00:09:12.379 so that's pillar one. Now we turn to the second 00:09:12.379 --> 00:09:14.980 pillar. Baker Oil Tool Company, founded around 00:09:14.980 --> 00:09:17.580 the same time, starting in 1907. And if Hughes 00:09:17.580 --> 00:09:20.080 was the mechanical innovation focused on destroying 00:09:20.080 --> 00:09:22.440 the rock. Baker was the completion engineering 00:09:22.440 --> 00:09:25.279 genius focused on securing the wellbore. And 00:09:25.279 --> 00:09:27.460 the founder, Ruben C. Baker, is one of those 00:09:27.460 --> 00:09:30.299 incredible stories of American ingenuity. Oh, 00:09:30.320 --> 00:09:32.440 absolutely. The sources show he was a farm boy, 00:09:32.620 --> 00:09:35.159 only three years of formal education. Three years. 00:09:35.379 --> 00:09:38.460 Yet he went on to receive over 150 patents in 00:09:38.460 --> 00:09:40.730 his lifetime. He started in the oil patch in 00:09:40.730 --> 00:09:44.129 1895, just hauling oil. And by 1896, he was a 00:09:44.129 --> 00:09:46.549 drilling contractor himself. He saw all the problems 00:09:46.549 --> 00:09:49.830 firsthand. His core revolutionary invention patented 00:09:49.830 --> 00:09:53.490 in July 1907 was the casing shoe. And this was 00:09:53.490 --> 00:09:56.009 monumental, especially for the cable tool drilling 00:09:56.009 --> 00:09:58.470 techniques that were so prevalent then. When 00:09:58.470 --> 00:10:00.710 you run casing into a well, especially through 00:10:00.710 --> 00:10:03.850 unstable formations, debris can fall into the 00:10:03.850 --> 00:10:06.269 bottom and block the pipe. or the casing itself 00:10:06.269 --> 00:10:08.649 can get damaged. So the casing shoe goes on the 00:10:08.649 --> 00:10:11.269 very bottom of the casing string. Right. It has 00:10:11.269 --> 00:10:13.389 specialized guides and often features a float 00:10:13.389 --> 00:10:16.350 valve. Its purpose is basically threefold. To 00:10:16.350 --> 00:10:18.769 guide the casing past obstructions, to protect 00:10:18.769 --> 00:10:21.090 the bottom edge of the pipe from damage, and 00:10:21.090 --> 00:10:23.330 most importantly, to allow the efficient running 00:10:23.330 --> 00:10:26.470 and subsequent cementing of the casing. Which 00:10:26.470 --> 00:10:28.889 ensures the uninterrupted flow path for the oil 00:10:28.889 --> 00:10:31.710 once the well is perforated. Precisely. So he 00:10:31.710 --> 00:10:33.870 established the Baker Casing Shoe Company in 00:10:33.870 --> 00:10:36.649 1913, but he quickly realized the potential for 00:10:36.649 --> 00:10:40.029 a much broader range of downhole tools. So by 00:10:40.029 --> 00:10:42.070 the 1920s, they were aggressively expanding. 00:10:42.509 --> 00:10:45.789 They established a critical Houston base and 00:10:45.789 --> 00:10:48.779 changed the name to Baker Oil Tools, Inc. In 00:10:48.779 --> 00:10:51.720 1928, reflecting a product line that was now 00:10:51.720 --> 00:10:54.759 focused on cementing, fishing, which is retrieving 00:10:54.759 --> 00:10:57.600 lost tools, and other completion equipment. Their 00:10:57.600 --> 00:10:59.539 growth continued through the mid -century, and 00:10:59.539 --> 00:11:02.059 it was driven partly by necessity. The Model 00:11:02.059 --> 00:11:05.340 D Packer was introduced in 1942, partly spurred 00:11:05.340 --> 00:11:08.299 by steel shortages during World War II. The Model 00:11:08.299 --> 00:11:10.580 D packer was key because it enabled multiple 00:11:10.580 --> 00:11:13.159 completions in a single well bore. What does 00:11:13.159 --> 00:11:15.519 that mean exactly? Before, you might need several 00:11:15.519 --> 00:11:17.659 different wells to produce from different geological 00:11:17.659 --> 00:11:20.899 zones. A packer seals the annulus, that's the 00:11:20.899 --> 00:11:23.019 space between the casing and the production tubing, 00:11:23.179 --> 00:11:25.799 and it allows engineers to isolate specific zones 00:11:25.799 --> 00:11:27.919 for selective production, testing, or treatment. 00:11:28.379 --> 00:11:31.039 So it's a massive leap in efficiency. Huge. It 00:11:31.039 --> 00:11:33.279 earned the company the prestigious Army -Navy 00:11:33.279 --> 00:11:36.000 -E flag in 1943 for their wartime manufacturing 00:11:36.000 --> 00:11:38.960 contributions. Baker himself retired in 1956 00:11:38.960 --> 00:11:41.730 and passed shortly after. But the company culture 00:11:41.730 --> 00:11:44.529 he built, focused on relentless patents and acquisition, 00:11:44.809 --> 00:11:48.549 just continued. By 1976, the company was large 00:11:48.549 --> 00:11:51.149 enough to rebrand as Baker International Corporation, 00:11:51.669 --> 00:11:54.929 consolidating its massive portfolio in Houston. 00:11:55.090 --> 00:11:57.669 We see that same aggressive acquisition strategy 00:11:57.669 --> 00:12:01.820 mirroring Hugh's tool. Oh, yeah. In the 1960s, 00:12:01.820 --> 00:12:04.440 Baker International acquired Pressure Services 00:12:04.440 --> 00:12:08.700 in 62 and then COBE in 63, which manufactured 00:12:08.700 --> 00:12:11.519 high -tech hydraulic systems for oil well pumping. 00:12:12.029 --> 00:12:14.950 They were diversifying beyond passive tools into 00:12:14.950 --> 00:12:18.070 active downhole equipment. And crucially, they 00:12:18.070 --> 00:12:20.490 solidified their completion expertise by acquiring 00:12:20.490 --> 00:12:24.429 Lines Inc. in 1970, which produced liner hangers. 00:12:24.429 --> 00:12:26.590 You guessed it, liner hangers, a key technology 00:12:26.590 --> 00:12:28.570 they now shared with their future merger partner, 00:12:28.750 --> 00:12:31.129 Hughes. The market was clearly demanding these 00:12:31.129 --> 00:12:33.110 comprehensive solutions. But the acquisition 00:12:33.110 --> 00:12:35.429 that truly broadened their scope was Miltim in 00:12:35.429 --> 00:12:38.289 1971. A major drilling fluids provider. Right, 00:12:38.409 --> 00:12:40.769 tracing its history back to the 1930s and drilling 00:12:40.769 --> 00:12:42.919 fluids. are the lifeblood of the drilling process. 00:12:43.100 --> 00:12:45.500 They lubricate, cool the bit, control formation 00:12:45.500 --> 00:12:47.399 pressure, and they carry cuttings back to the 00:12:47.399 --> 00:12:50.100 surface. So Milcom provided the chemical expertise 00:12:50.100 --> 00:12:52.519 that complemented Hughes' mechanical expertise. 00:12:52.740 --> 00:12:55.419 Exactly. And the need for knowledge just kept 00:12:55.419 --> 00:12:59.240 pushing them. In 1972, Baker International acquired 00:12:59.240 --> 00:13:03.679 Exploration Logging Company, or XOG. XOG specialized 00:13:03.679 --> 00:13:07.159 in mud logging. Right. As the mud returns to 00:13:07.159 --> 00:13:09.360 the surface, technicians analyze the physical 00:13:09.360 --> 00:13:11.399 and chemical properties of the rock cuttings, 00:13:11.399 --> 00:13:14.500 and the gas is carried up. This provides real 00:13:14.500 --> 00:13:16.860 -time geological information. Like where you 00:13:16.860 --> 00:13:19.740 are, what pressures you're seeing, and most importantly... 00:13:19.740 --> 00:13:22.440 If you're hitting oil or gas. Eckexog was founded 00:13:22.440 --> 00:13:25.879 in 1952 in California, and its acquisition shows 00:13:25.879 --> 00:13:28.659 Baker's shift toward integrated information services, 00:13:29.000 --> 00:13:31.740 not just hardware sales. So... Stepping back 00:13:31.740 --> 00:13:33.840 for a minute, what we're seeing here is two massive 00:13:33.840 --> 00:13:36.159 companies building these complementary empires 00:13:36.159 --> 00:13:38.879 through internal innovation. The bit and the 00:13:38.879 --> 00:13:41.899 casing shoe. And then aggressive external acquisition. 00:13:42.179 --> 00:13:44.340 They were both aiming for total vertical integration 00:13:44.340 --> 00:13:46.740 of oil field services. The stage wasn't just 00:13:46.740 --> 00:13:48.759 set for a merger. It was set for an inevitable 00:13:48.759 --> 00:13:51.259 collision, especially when the economic environment 00:13:51.259 --> 00:13:53.779 changed so dramatically. That collision finally 00:13:53.779 --> 00:13:57.909 came in 1987. The 1980s oil glut had created 00:13:57.909 --> 00:14:00.850 tremendous market pressure. Oil prices collapsed, 00:14:00.990 --> 00:14:04.129 and suddenly the cost of competition became unbearable. 00:14:04.480 --> 00:14:06.940 Yeah. When prices fall, the efficiency of oil 00:14:06.940 --> 00:14:09.480 field services becomes paramount. And the best 00:14:09.480 --> 00:14:11.620 way to achieve radical cost reduction and leverage 00:14:11.620 --> 00:14:13.980 market dominance is through consolidation. Which 00:14:13.980 --> 00:14:16.179 led directly to the birth of Baker Hughes Incorporated. 00:14:16.620 --> 00:14:19.580 Baker International merged with Hughes Tool Company 00:14:19.580 --> 00:14:23.120 in a stock transaction valued at $728 million. 00:14:23.580 --> 00:14:25.779 But as you pointed out, this was less of a smooth 00:14:25.779 --> 00:14:29.220 partnership and more of a shotgun marriage driven 00:14:29.220 --> 00:14:32.649 by survival. The merger was fraught with drama 00:14:32.649 --> 00:14:34.889 right in the beginning. Well, it was contentious 00:14:34.889 --> 00:14:37.149 because the merger created such a huge market 00:14:37.149 --> 00:14:39.590 share in several crucial tool categories, regulatory 00:14:39.590 --> 00:14:42.429 bodies. The DOJ. Specifically, the U .S. Department 00:14:42.429 --> 00:14:45.129 of Justice. They demanded concessions to prevent 00:14:45.129 --> 00:14:48.110 monopolization. Baker had to enter into a consent 00:14:48.110 --> 00:14:50.409 decree, which forced it to divest significant 00:14:50.409 --> 00:14:52.950 product lines. Including Reed Tool Company, which 00:14:52.950 --> 00:14:56.149 Baker had acquired back in 1975 for $120 million 00:14:56.149 --> 00:14:59.590 and its Baker Lift division. And here's the dramatic 00:14:59.590 --> 00:15:02.450 turn. Hughes actually attempted to terminate 00:15:02.450 --> 00:15:04.830 the agreement after Baker had already begun the 00:15:04.830 --> 00:15:07.350 process of divesting these profitable businesses. 00:15:07.629 --> 00:15:10.769 Why? They argued that the divestitures materially 00:15:10.769 --> 00:15:14.070 changed the value proposition of the deal. Which 00:15:14.070 --> 00:15:16.850 led to Baker suing Hughes for a billion dollars 00:15:16.850 --> 00:15:19.429 just to force the deal through. Can you imagine? 00:15:19.879 --> 00:15:22.759 Despite the legal battles and all the acrimony, 00:15:22.840 --> 00:15:25.720 Hughes shareholders voted overwhelmingly to complete 00:15:25.720 --> 00:15:28.419 the transaction, forming the modern Baker Hughes 00:15:28.419 --> 00:15:31.659 Incorporated. This contentious start is, I think, 00:15:31.679 --> 00:15:34.940 highly indicative of the company's culture. They 00:15:34.940 --> 00:15:36.919 have been forged in this crucible of relentless 00:15:36.919 --> 00:15:40.440 M &A, legal battles and forced adaptation. It 00:15:40.440 --> 00:15:43.299 definitely prepared them for the nonstop structural 00:15:43.299 --> 00:15:45.899 reshaping that continues to define them today. 00:15:46.100 --> 00:15:48.259 And this brings us right up to the current structure, 00:15:48.379 --> 00:15:51.330 which underwent a major simplification. post 00:15:51.330 --> 00:15:54.929 -2022. This reorganization is critical because 00:15:54.929 --> 00:15:57.230 it explicitly signals their future priorities. 00:15:57.450 --> 00:15:59.350 That's right. The company is now organized into 00:15:59.350 --> 00:16:01.950 two primary operational units. The first and 00:16:01.950 --> 00:16:04.009 the largest pillar is what they call oil field 00:16:04.009 --> 00:16:07.049 services and equipment, or OSE. This is the traditional 00:16:07.049 --> 00:16:09.929 cash engine. It covers the entire lifecycle of 00:16:09.929 --> 00:16:13.070 a well. The drilling, the completion, the intervention, 00:16:13.269 --> 00:16:16.250 the production, subsea systems, the flexible 00:16:16.250 --> 00:16:18.950 pipes required to move the fluids. All of it. 00:16:19.009 --> 00:16:21.149 But the nuance here is where the pivot begins 00:16:21.149 --> 00:16:25.509 subtly. The OFSE segment explicitly serves both 00:16:25.509 --> 00:16:27.590 the petroleum and the geothermal industries. 00:16:27.789 --> 00:16:30.529 And that's a huge strategic insight. Geothermal 00:16:30.529 --> 00:16:33.129 energy involves drilling extremely deep wells 00:16:33.129 --> 00:16:35.590 to access reservoirs of high temperature heat 00:16:35.590 --> 00:16:38.090 or steam. So they are tapping into the Earth's 00:16:38.090 --> 00:16:41.570 core energy, not hydrocarbons. But wait, how 00:16:41.570 --> 00:16:43.590 much of that century -old drilling technology 00:16:43.590 --> 00:16:46.149 actually applies to geothermal? I mean, are the 00:16:46.149 --> 00:16:48.450 temperatures and materials not wildly different? 00:16:48.529 --> 00:16:50.509 Is this a genuine leverage point or is it just 00:16:50.509 --> 00:16:52.649 good marketing? That's a fantastic point to probe. 00:16:52.789 --> 00:16:55.570 The core expertise managing high -pressure environments, 00:16:55.909 --> 00:16:58.309 dealing with directional drilling deep underground, 00:16:58.629 --> 00:17:01.429 handling corrosive materials, it's all completely 00:17:01.429 --> 00:17:04.349 transferable. However, you're right. Geothermal 00:17:04.349 --> 00:17:06.930 temperatures are significantly higher, sometimes 00:17:06.930 --> 00:17:10.609 reaching over 300 degrees Celsius. That stresses 00:17:10.609 --> 00:17:14.190 electronics, elastomers, and metallurgy far more 00:17:14.190 --> 00:17:16.289 severely than standard oil and gas drilling. 00:17:16.509 --> 00:17:19.690 So? So Baker Hughes is banking on the fact that 00:17:19.690 --> 00:17:22.609 they have the best tools for drilling deep, difficult 00:17:22.609 --> 00:17:26.009 holes, regardless of the fluid coming out. It's 00:17:26.009 --> 00:17:28.890 an effective way to diversify risk without abandoning 00:17:28.890 --> 00:17:31.240 their core competencies. But the real shift, 00:17:31.420 --> 00:17:33.859 the genuine redefinition of the company identity 00:17:33.859 --> 00:17:36.359 is housed in the second pillar. The industrial 00:17:36.359 --> 00:17:38.920 and energy technology or IEG segment. Right. 00:17:39.000 --> 00:17:41.339 This segment is where the future capital investment 00:17:41.339 --> 00:17:43.519 is focused. It provides high -tech equipment 00:17:43.519 --> 00:17:46.039 for mechanical drive, compression, power generation, 00:17:46.279 --> 00:17:48.579 and specialized measurement tools. But the strategic 00:17:48.579 --> 00:17:51.339 focus is squarely on climate -related technologies. 00:17:51.599 --> 00:17:53.720 This includes the equipment and infrastructure 00:17:53.720 --> 00:17:56.279 needed for carbon capture, hydrogen production, 00:17:56.519 --> 00:17:58.460 and sophisticated emissions management solutions. 00:17:58.920 --> 00:18:01.680 So if the OSE segment is leveraging their legacy 00:18:01.680 --> 00:18:04.380 to keep the lights on... The IET segment is explicitly 00:18:04.380 --> 00:18:06.539 designed to future -proof the company. Yeah, 00:18:06.559 --> 00:18:09.140 the skills they developed managing massive compressors 00:18:09.140 --> 00:18:12.400 for LNG or natural gas pipelines... are now directly 00:18:12.400 --> 00:18:15.259 applicable to compressing hydrogen or compressing 00:18:15.259 --> 00:18:17.579 CO2 for sequestration. It's the organizational 00:18:17.579 --> 00:18:19.920 mechanism they're using to chase their net zero 00:18:19.920 --> 00:18:22.920 goals. So that 1987 merger was, as we established, 00:18:23.059 --> 00:18:25.700 just the beginning of a new, even more aggressive 00:18:25.700 --> 00:18:28.799 phase of growth and specialization. The goal 00:18:28.799 --> 00:18:31.740 was to dominate specific technological niches. 00:18:32.059 --> 00:18:35.240 And the 1990s were marked by massive strategic 00:18:35.240 --> 00:18:38.240 technology acquisitions. One of the most pivotal 00:18:38.240 --> 00:18:41.460 deals was in 1990, the acquisition of Eastman 00:18:41.460 --> 00:18:45.519 Christensen for a whopping $600 million. This 00:18:45.519 --> 00:18:47.640 wasn't about just getting bigger. This was about 00:18:47.640 --> 00:18:50.140 cornering the market on the next great technological 00:18:50.140 --> 00:18:53.559 leap in drilling, directional drilling. Absolutely. 00:18:53.799 --> 00:18:55.380 So explain the magnitude of that technological 00:18:55.380 --> 00:18:57.980 shift. What did Eastman Christensen bring to 00:18:57.980 --> 00:19:00.329 the table? Okay, so directional drilling is the 00:19:00.329 --> 00:19:02.329 process of intentionally steering the drill bit 00:19:02.329 --> 00:19:05.089 to follow a specific non -vertical geological 00:19:05.089 --> 00:19:08.410 path. Eastman's lineage goes back to 1929 in 00:19:08.410 --> 00:19:11.089 California. They pioneered the use of whip stocks 00:19:11.089 --> 00:19:13.410 and magnetic instruments to deflect the pipe. 00:19:13.759 --> 00:19:15.859 And then later, the Christensen side brought 00:19:15.859 --> 00:19:18.799 advanced diamond bit technology and, critically, 00:19:19.339 --> 00:19:21.940 downhole motor innovations like the knobby drill 00:19:21.940 --> 00:19:24.220 line. So this wasn't just about pointing the 00:19:24.220 --> 00:19:26.359 bit in a different direction. It was about precision. 00:19:26.740 --> 00:19:29.220 Total precision. They developed the industry's 00:19:29.220 --> 00:19:32.880 first truly steerable motor system and the revolutionary 00:19:32.880 --> 00:19:36.119 AutoTrack rotary closed loop system. And that 00:19:36.119 --> 00:19:39.299 was a quantum leap. A quantum leap. The AutoTrack 00:19:39.299 --> 00:19:41.940 allows the driller to continuously rotate the 00:19:41.940 --> 00:19:44.390 drill string while steering. That eliminates 00:19:44.390 --> 00:19:47.069 friction and allows for much longer horizontal 00:19:47.069 --> 00:19:49.869 wells. Before you had to stop rotating the pipe 00:19:49.869 --> 00:19:52.569 to steer. Right, which created friction and limited 00:19:52.569 --> 00:19:55.109 the length of the lateral section. This technology 00:19:55.109 --> 00:19:57.289 unlocked the age of horizontal drilling that 00:19:57.289 --> 00:19:59.470 completely dominates fracking and deep reservoir 00:19:59.470 --> 00:20:02.049 development today. That kind of dominance came 00:20:02.049 --> 00:20:05.059 at a price, though. The acquisition process itself 00:20:05.059 --> 00:20:08.799 revealed the necessary ruthlessness of M &A. 00:20:08.900 --> 00:20:11.259 It did. To secure U .S. Department of Justice 00:20:11.259 --> 00:20:13.740 approval for the Eastman -Christensen deal, Baker 00:20:13.740 --> 00:20:16.059 Hughes was forced to sell its own Hughes Tool 00:20:16.059 --> 00:20:19.180 diamond bit business. Wow. So they effectively 00:20:19.180 --> 00:20:22.039 sold off a piece of their legacy technology to 00:20:22.039 --> 00:20:24.500 acquire a far superior suite of directional drilling 00:20:24.500 --> 00:20:26.559 and measurement tools. They did. The combined 00:20:26.559 --> 00:20:29.500 entity was named Hughes -Christensen. And the 00:20:29.500 --> 00:20:31.339 innovation under Hughes -Christensen didn't slow 00:20:31.339 --> 00:20:35.019 down. They introduced the AR series PDC bits 00:20:35.019 --> 00:20:38.279 in 1993, claiming penetration rate increases 00:20:38.279 --> 00:20:43.079 of up to 100%. And by 95, the gold series PDC 00:20:43.079 --> 00:20:46.099 line focused on reducing frictional forces. They 00:20:46.099 --> 00:20:48.460 were continually building on the Genesis HCM 00:20:48.460 --> 00:20:51.700 bits with patented easy steer depth of cut control, 00:20:51.859 --> 00:20:54.259 making the drilling process highly automated 00:20:54.259 --> 00:20:56.640 and efficient. The next piece of the puzzle was 00:20:56.640 --> 00:20:59.109 real time information. Right. They moved into 00:20:59.109 --> 00:21:02.990 measurement wall drilling, or MWD. In 1992, they 00:21:02.990 --> 00:21:05.809 acquired Teleco Oil Field Services for $200 million. 00:21:06.690 --> 00:21:08.809 Teleco was the provider of the world's first 00:21:08.809 --> 00:21:12.589 MWD tool, introduced back in 1978. So why is 00:21:12.589 --> 00:21:14.670 MWD so valuable, especially when you pair it 00:21:14.670 --> 00:21:17.450 with directional drilling? Because MWD transmits 00:21:17.450 --> 00:21:20.049 real -time data from the drill bit back up the 00:21:20.049 --> 00:21:22.690 pipe to the surface using pressure pulses in 00:21:22.690 --> 00:21:24.650 the drilling fluid without having to stop drilling. 00:21:24.849 --> 00:21:26.910 And this data includes the direction, inclination? 00:21:27.369 --> 00:21:30.569 and crucial formation properties. If you're drilling 00:21:30.569 --> 00:21:33.990 a horizontal well, MWD is your eye down hole. 00:21:34.170 --> 00:21:36.990 You can steer the bit to stay precisely within 00:21:36.990 --> 00:21:40.410 a thin layer of reservoir rock, maximizing exposure 00:21:40.410 --> 00:21:43.009 to the hydrocarbon. Without MWD, you would be 00:21:43.009 --> 00:21:45.960 operating blind. Totally blind. Constantly pulling 00:21:45.960 --> 00:21:48.380 the pipe out to check your position, which is 00:21:48.380 --> 00:21:51.400 incredibly costly and time consuming. This accumulation 00:21:51.400 --> 00:21:53.799 of integrated services, directional drilling, 00:21:53.960 --> 00:21:57.160 advanced bits, real time measurement led to another 00:21:57.160 --> 00:22:00.480 corporate shuffling moment in 1993. Right. Creating 00:22:00.480 --> 00:22:03.799 Baker Hughes NTQ to combine five of the company's 00:22:03.799 --> 00:22:05.660 oil field divisions. It's just this perpetual 00:22:05.660 --> 00:22:08.039 state of corporate synthesis. And that strategic 00:22:08.039 --> 00:22:10.980 push reached its peak in the late 1990s with 00:22:10.980 --> 00:22:13.799 the colossal 1998 acquisition of Western Atlas. 00:22:13.980 --> 00:22:17.660 This was. Massive. $5 .5 billion in stock, plus 00:22:17.660 --> 00:22:20.460 they assume $700 million in debt. And Western 00:22:20.460 --> 00:22:22.160 Atlas was the final piece of the integration 00:22:22.160 --> 00:22:24.759 puzzle. It brought expertise in seismic data 00:22:24.759 --> 00:22:27.880 and downhole wireline services. It did. And here's 00:22:27.880 --> 00:22:29.400 where it gets really interesting on the corporate 00:22:29.400 --> 00:22:32.119 rivalry front. They spent billions just to keep 00:22:32.119 --> 00:22:34.259 it out of Halliburton's hands. That sounds like 00:22:34.259 --> 00:22:36.980 a Cold War mentality in the oil patch. How did 00:22:36.980 --> 00:22:38.900 that shape the culture of the combined company? 00:22:39.359 --> 00:22:42.940 It absolutely was a defensive, existential, strategic 00:22:42.940 --> 00:22:46.740 move. Western Atlas was a strong competitor specializing 00:22:46.740 --> 00:22:50.319 in subsurface imaging. Seismic uses sound waves 00:22:50.319 --> 00:22:53.019 to map geological formations, helping companies 00:22:53.019 --> 00:22:55.460 decide where to drill. And wireline services 00:22:55.460 --> 00:22:57.779 use cables dropped into the well to take precise 00:22:57.779 --> 00:23:00.680 measurements and logs. So by acquiring Western 00:23:00.680 --> 00:23:03.619 Atlas, Baker Hughes gained robust capabilities 00:23:03.619 --> 00:23:07.220 in seismic data and downhole logging, matching 00:23:07.220 --> 00:23:09.849 the full spectrum of services. offered by Schlumberger 00:23:09.849 --> 00:23:12.450 and preventing Halliburton from gaining a significant 00:23:12.450 --> 00:23:15.450 advantage. It showed a willingness to pay a premium 00:23:15.450 --> 00:23:18.289 to ensure competitive parity. A huge premium. 00:23:18.609 --> 00:23:20.670 So what happened to that massive seismic business? 00:23:20.990 --> 00:23:24.190 Well, it didn't last. In 2000, during an industry 00:23:24.190 --> 00:23:27.049 downturn, Baker Hughes merged its Western Geophysical 00:23:27.049 --> 00:23:29.890 Division with Schlumberger's GEICO to form Western 00:23:29.890 --> 00:23:32.250 GEICO. An attempt to reduce capital expenditures. 00:23:32.809 --> 00:23:35.130 Right. In the high cost seismic market. But by 00:23:35.130 --> 00:23:38.109 2006, Baker Hughes decided to exit the highly 00:23:38.109 --> 00:23:41.670 cyclical seismic data business entirely, selling 00:23:41.670 --> 00:23:44.490 its 30 percent share of Western Geico back to 00:23:44.490 --> 00:23:47.190 Schlumberger for two point four billion dollars 00:23:47.190 --> 00:23:50.029 in cash. It shows that even massive strategic 00:23:50.029 --> 00:23:52.490 alliances can be treated as temporary assets 00:23:52.490 --> 00:23:54.710 to be monetized when the market shifts. Exactly. 00:23:54.710 --> 00:23:57.730 From data acquisition toward higher margin downhole 00:23:57.730 --> 00:23:59.730 services. So while they were growing rapidly, 00:23:59.990 --> 00:24:02.569 this aggressive expansion into new high stakes 00:24:02.569 --> 00:24:04.990 international markets also brought significant 00:24:04.990 --> 00:24:08.410 corporate complications. Most notably, the 2007 00:24:08.410 --> 00:24:10.950 guilty plea regarding the Foreign Corrupt Practices 00:24:10.950 --> 00:24:14.460 Act or FCPA violation. This is a sobering reminder 00:24:14.460 --> 00:24:16.759 of the ethical and regulatory risks involved 00:24:16.759 --> 00:24:19.000 in securing massive international contracts. 00:24:19.279 --> 00:24:21.819 The violation covered activities from 2001 to 00:24:21.819 --> 00:24:24.480 2003. The company pleaded guilty and agreed to 00:24:24.480 --> 00:24:28.140 pay $44 .1 million in fines and penalties. And 00:24:28.140 --> 00:24:30.000 this was linked to commission payments related 00:24:30.000 --> 00:24:32.680 to a major oil services contract for the Karachaganak 00:24:32.680 --> 00:24:35.279 field in Kazakhstan. Correct. The $4 .1 million 00:24:35.279 --> 00:24:37.720 in improper payments were funneled through consultants 00:24:37.720 --> 00:24:40.400 to allegedly help secure that lucrative contract. 00:24:47.809 --> 00:24:53.500 Mm -hmm. Which companies then spend years and 00:24:53.500 --> 00:24:55.900 millions of dollars resolving through deferred 00:24:55.900 --> 00:24:58.519 prosecution agreements? It shows that maintaining 00:24:58.519 --> 00:25:01.940 global dominance requires rigorous internal compliance, 00:25:02.339 --> 00:25:04.720 which is a constant challenge for firms operating 00:25:04.720 --> 00:25:06.980 in high -risk regions. On a different front, 00:25:07.099 --> 00:25:10.220 but still related to global operations, we saw 00:25:10.220 --> 00:25:12.420 friction in their labor relations, particularly 00:25:12.420 --> 00:25:15.009 in Norway. A critical North Sea operating base. 00:25:15.190 --> 00:25:18.829 Yeah. In June 2012, trade unions like SAITH threatened 00:25:18.829 --> 00:25:21.829 strike action involving 114 employees across 00:25:21.829 --> 00:25:24.329 multiple installations. The threat was serious 00:25:24.329 --> 00:25:27.009 because even a small localized strike can shut 00:25:27.009 --> 00:25:29.970 down complex offshore operations, incurring huge 00:25:29.970 --> 00:25:32.250 costs. Right. Fortunately for the company, the 00:25:32.250 --> 00:25:33.950 strike was called off quickly after the parties 00:25:33.950 --> 00:25:36.210 successfully agreed to a new collective agreement. 00:25:36.799 --> 00:25:38.839 It reminds us that for a technology firm to operate 00:25:38.839 --> 00:25:41.480 smoothly, the human element managing thousands 00:25:41.480 --> 00:25:43.539 of employees under various collective agreements 00:25:43.539 --> 00:25:46.200 globally is as critical as the technology itself. 00:25:46.460 --> 00:25:48.900 Now, let's fast forward to the failed mega merger 00:25:48.900 --> 00:25:52.259 of the mid 2010s. This is a proposed acquisition 00:25:52.259 --> 00:25:55.519 by their major rival, Halliburton. Announced 00:25:55.519 --> 00:26:00.259 in November 2014, valued at $34 .6 billion. That 00:26:00.259 --> 00:26:01.920 would have been the single largest merger in 00:26:01.920 --> 00:26:04.180 the history of the petroleum industry. It would 00:26:04.180 --> 00:26:06.339 have created an unchallenged global services 00:26:06.339 --> 00:26:09.460 behemoth. And the stockholders of both companies 00:26:09.460 --> 00:26:12.000 approved it. That reflects the internal drive 00:26:12.000 --> 00:26:14.240 to consolidate during a period of global oil 00:26:14.240 --> 00:26:17.220 price volatility. The industry felt consolidation 00:26:17.220 --> 00:26:20.019 was necessary to control costs and exert pricing 00:26:20.019 --> 00:26:22.299 power. But the U .S. Department of Justice wasn't 00:26:22.299 --> 00:26:25.299 having it. Not at all. The DOJ sued to block 00:26:25.299 --> 00:26:28.480 the transaction in 2016. They had serious concerns 00:26:28.480 --> 00:26:30.680 that the merger would lead to a near monopoly 00:26:30.680 --> 00:26:33.380 in specific critical markets. Not just broadly 00:26:33.380 --> 00:26:35.660 in oilfield services, but in highly specialized 00:26:35.660 --> 00:26:38.980 niches. Right. Like deepwater cementing, specialized 00:26:38.980 --> 00:26:41.420 directional drilling tools, and certain types 00:26:41.420 --> 00:26:44.180 of drilling fluid systems. They argued that competition 00:26:44.180 --> 00:26:46.779 would be severely harmed, leading directly to 00:26:46.779 --> 00:26:49.119 higher prices for the remaining E &P companies. 00:26:49.380 --> 00:26:51.579 And the companies formally terminated the deal 00:26:51.579 --> 00:26:55.630 just weeks after the lawsuit was filed. So having 00:26:55.630 --> 00:26:57.470 failed to merge with their largest competitor, 00:26:57.670 --> 00:27:00.109 they quickly pivoted their focus to a completely 00:27:00.109 --> 00:27:02.670 different type of partner, General Electric. 00:27:02.890 --> 00:27:06.009 A huge pivot. They successfully merged with GE 00:27:06.009 --> 00:27:11.089 Oil & Gas in July 2017. And this GE chapter fundamentally 00:27:11.089 --> 00:27:13.950 reshaped the company. It provided access to GE's 00:27:13.950 --> 00:27:16.809 capital, its industrial scale, and its advanced 00:27:16.809 --> 00:27:19.039 turbine and compressor technology. The combined 00:27:19.039 --> 00:27:21.519 entity initially took on the name Baker Hughes, 00:27:21.819 --> 00:27:24.180 a GE company. And even this successful merger 00:27:24.180 --> 00:27:27.480 required regulatory concessions. It did. To satisfy 00:27:27.480 --> 00:27:30.000 regulators, Baker Hughes sold a significant portion 00:27:30.000 --> 00:27:32.339 of its hydraulic fracturing and cementing business, 00:27:32.660 --> 00:27:35.259 a segment that included the previously reacquired 00:27:35.259 --> 00:27:39.539 BJ Services Company for $325 million. So that 00:27:39.539 --> 00:27:42.299 was the cost of marrying into GE, shedding core 00:27:42.299 --> 00:27:45.059 traditional services to integrate GE's industrial 00:27:45.059 --> 00:27:47.779 technology portfolio. Exactly. And in a final... 00:27:47.920 --> 00:27:50.099 twist of corporate churn, even the GE alliance 00:27:50.099 --> 00:27:53.140 proved temporary. GE subsequently announced plans 00:27:53.140 --> 00:27:56.619 to divest its entire stake by 2023, refocusing 00:27:56.619 --> 00:27:58.980 on its core industrial and healthcare businesses. 00:27:59.299 --> 00:28:02.220 So by the end of 2021, GE's ownership had already 00:28:02.220 --> 00:28:05.099 plummeted. It had. And the company that emerged 00:28:05.099 --> 00:28:07.500 from the GE chapter was the Baker Hughes company 00:28:07.500 --> 00:28:10.599 we see today, aggressively independent, focused, 00:28:10.660 --> 00:28:12.920 and armed with the technologies it gained during 00:28:12.920 --> 00:28:15.720 the merger. And now clearly focused on energy 00:28:15.720 --> 00:28:18.869 transition. That GE divorce coincided precisely 00:28:18.869 --> 00:28:21.309 with the global escalation of climate targets, 00:28:21.529 --> 00:28:23.809 forcing the company to decide how to leverage 00:28:23.809 --> 00:28:26.069 its massive infrastructure for the future. And 00:28:26.069 --> 00:28:28.369 the answer lies in that industrial and energy 00:28:28.369 --> 00:28:31.509 technology IET segment. It's become the primary 00:28:31.509 --> 00:28:34.309 vehicle for this pivot. The first step was establishing 00:28:34.309 --> 00:28:37.410 clear externally facing climate pledges. They 00:28:37.410 --> 00:28:40.049 made a significant commitment in January 2019 00:28:40.049 --> 00:28:42.549 to reduce carbon dioxide equivalent emissions 00:28:42.549 --> 00:28:46.089 by 50 percent by 2030 and to reach 100 percent 00:28:46.089 --> 00:28:49.809 net zero emissions by 2050 using a 2012 baseline. 00:28:50.069 --> 00:28:51.849 And these aren't minor adjustments. These are 00:28:51.849 --> 00:28:54.589 huge public decades spanning targets that demand 00:28:54.589 --> 00:28:57.109 radical investment. And they back those pledges 00:28:57.109 --> 00:28:59.230 up by chasing the most difficult technological 00:28:59.230 --> 00:29:02.009 challenge in the energy transition. industrial 00:29:02.009 --> 00:29:04.369 scale carbon capture technology. Right. This 00:29:04.369 --> 00:29:06.809 involved both licensing external expertise and 00:29:06.809 --> 00:29:09.150 acquiring specialized firms. They moved quickly. 00:29:09.309 --> 00:29:12.349 In November 2020, they acquired Compact Carbon 00:29:12.349 --> 00:29:15.190 Capture. What was the significance of that? Compact 00:29:15.190 --> 00:29:17.410 Carbon Capture focused on developing solvent 00:29:17.410 --> 00:29:20.250 -based carbon capture patents. Solvent -based 00:29:20.250 --> 00:29:22.970 systems are the most established method for stripping 00:29:22.970 --> 00:29:26.069 CO2 from industrial flue gases. So they use liquid 00:29:26.069 --> 00:29:28.839 chemicals, solvents that... Chemically bond with 00:29:28.839 --> 00:29:31.140 the CO2. Exactly. Which is then released and 00:29:31.140 --> 00:29:33.359 captured by heating the solvent. This was a direct 00:29:33.359 --> 00:29:36.359 entry into a crucial decarbonization market. 00:29:36.660 --> 00:29:39.779 And following that, in March 2021, they secured 00:29:39.779 --> 00:29:42.299 a license for the use of Mixed Salt Process Technology, 00:29:42.619 --> 00:29:46.720 or MSP, for flue gas carbon capture from SRI 00:29:46.720 --> 00:29:49.859 International. So the MSP technology is a parallel 00:29:49.859 --> 00:29:52.859 competing methods for CO2 capture. It's often 00:29:52.859 --> 00:29:55.000 cited for its lower energy demands when dealing 00:29:55.000 --> 00:29:58.000 with high volume, low concentration flue gases. 00:29:58.319 --> 00:30:00.119 Like those from certain power plants or large 00:30:00.119 --> 00:30:02.319 industrial facilities. Exactly. So by acquiring 00:30:02.319 --> 00:30:04.660 both the solvent based systems and licensing 00:30:04.660 --> 00:30:07.579 MSP, they are strategically pursuing multiple 00:30:07.579 --> 00:30:09.940 technological pathways to build a comprehensive, 00:30:10.220 --> 00:30:12.720 full spectrum carbon capture portfolio for their 00:30:12.720 --> 00:30:14.700 clients. And this commitment is translating into 00:30:14.700 --> 00:30:17.849 real world projects, not just patents. In June 00:30:17.849 --> 00:30:20.269 2021, they entered into a joint venture with 00:30:20.269 --> 00:30:23.950 Borg CO2, specifically targeting a waste -to 00:30:23.950 --> 00:30:27.009 -energy plant in Sarpsburg, Norway. That project 00:30:27.009 --> 00:30:29.089 is key because it moves them from laboratory 00:30:29.089 --> 00:30:32.289 or pilot -scale work to practical large -scale 00:30:32.289 --> 00:30:35.210 deployment. They are tasked not only with capturing 00:30:35.210 --> 00:30:37.529 the CO2, but also with engineering the infrastructure 00:30:37.529 --> 00:30:40.369 for its liquefaction. Cooling and compressing 00:30:40.369 --> 00:30:43.130 the gas into a liquid state. Right. And transportation 00:30:43.130 --> 00:30:47.849 to a final sequestration site. CCUS carbon capture 00:30:47.849 --> 00:30:50.910 utilization and storage chain solution. Beyond 00:30:50.910 --> 00:30:52.750 carbon management, they're looking at the fundamental 00:30:52.750 --> 00:30:55.690 components of energy infrastructure. We saw a 00:30:55.690 --> 00:30:58.789 major joint venture in December 2020 with Aramco 00:30:58.789 --> 00:31:01.390 to create novel non -metallic solutions manufacturing. 00:31:01.849 --> 00:31:03.650 This is all about modernization and material 00:31:03.650 --> 00:31:06.390 science. The goal of novel is to produce advanced 00:31:06.390 --> 00:31:08.910 non -metallic materials like high -grade composite 00:31:08.910 --> 00:31:11.160 pipes and equipment. And why is that important? 00:31:11.319 --> 00:31:13.740 Well, nonmetallics offer superior resistance 00:31:13.740 --> 00:31:16.700 to corrosion compared to traditional steel. They 00:31:16.700 --> 00:31:19.480 weigh less and they can significantly lower maintenance 00:31:19.480 --> 00:31:22.500 costs. This is particularly relevant in the Middle 00:31:22.500 --> 00:31:25.259 East, where high sulfur content often accelerates 00:31:25.259 --> 00:31:27.660 pipeline decay. And it will be crucial for handling 00:31:27.660 --> 00:31:31.400 highly corrosive fluids like wet CO2 or future 00:31:31.400 --> 00:31:34.099 hydrogen blends. You got it. Their strategy also 00:31:34.099 --> 00:31:36.839 shifted heavily towards software, services and 00:31:36.839 --> 00:31:39.819 asset integrity, the knowledge economy side of 00:31:39.819 --> 00:31:42.000 energy management. Which feeds directly into 00:31:42.000 --> 00:31:46.200 the IET segment. In 2021, they acquired RMS Reliability, 00:31:46.460 --> 00:31:48.940 providing advisory services and software across 00:31:48.940 --> 00:31:51.640 several industries. ARMS focuses on predictive 00:31:51.640 --> 00:31:54.359 maintenance and operational efficiency. Instead 00:31:54.359 --> 00:31:56.440 of waiting for a pump or compressor to break, 00:31:56.619 --> 00:31:58.799 their software uses data analytics to predict 00:31:58.799 --> 00:32:01.039 failure, allowing for planned maintenance. This 00:32:01.039 --> 00:32:03.039 is a high margin business that increases the 00:32:03.039 --> 00:32:05.140 efficiency and safety of massive infrastructure. 00:32:05.400 --> 00:32:07.599 And it's a crucial component of emissions management, 00:32:07.779 --> 00:32:10.619 as efficient operations inherently reduce waste 00:32:10.619 --> 00:32:13.000 and consumption. That knowledge focus was cemented 00:32:13.000 --> 00:32:16.839 in November 2022 with the $279 million acquisition 00:32:16.839 --> 00:32:20.079 of Quest Integrity. Quest Integrity provides 00:32:20.079 --> 00:32:23.119 critical asset integrity services. They make 00:32:23.119 --> 00:32:25.539 sure that aging infrastructure pipelines, refineries, 00:32:25.619 --> 00:32:28.559 storage tanks remain safe and operational using 00:32:28.559 --> 00:32:31.259 advanced inspection technologies and data analysis. 00:32:31.640 --> 00:32:34.480 These types of acquisitions are not flashy, but 00:32:34.480 --> 00:32:36.859 they are essential for integrating high -tech, 00:32:36.960 --> 00:32:39.819 high -margin services into the overall portfolio. 00:32:40.200 --> 00:32:42.420 Right. It moves them away from being merely a 00:32:42.420 --> 00:32:45.259 tool provider to a full -service technology manager. 00:32:45.539 --> 00:32:48.859 And while the IET focus is clear, they haven't 00:32:48.859 --> 00:32:50.660 abandoned the core drilling and intervention 00:32:50.660 --> 00:32:54.119 services. Not at all. In March 2021, they announced 00:32:54.119 --> 00:32:57.400 a joint venture with Acaster ASA's subsidiary, 00:32:57.420 --> 00:33:00.980 MH Worth AS, focused on global offshore drilling 00:33:00.980 --> 00:33:04.460 solutions. And in March 2022, they acquired Altus 00:33:04.460 --> 00:33:06.640 Intervention, a Norwegian oil well specialist, 00:33:06.920 --> 00:33:08.859 strengthening their well intervention position. 00:33:09.200 --> 00:33:11.079 These moves show the balanced strategy. They 00:33:11.079 --> 00:33:12.980 are still optimizing and consolidating their 00:33:12.980 --> 00:33:15.240 core OSC business to generate the necessary cash 00:33:15.240 --> 00:33:17.750 flow and maintain market leadership. which in 00:33:17.750 --> 00:33:20.289 turn funds the massive R &D and M &A required 00:33:20.289 --> 00:33:24.029 for the IAT pivot. And that M &A strategy culminated 00:33:24.029 --> 00:33:26.450 in the most significant indicator of their IET 00:33:26.450 --> 00:33:29.289 commitment, the massive announced acquisition 00:33:29.289 --> 00:33:34.589 of Chart Industries in July 2025 for $13 .6 billion. 00:33:35.069 --> 00:33:37.869 This is the definitive strategic shift. Chart 00:33:37.869 --> 00:33:40.369 Industries is a specialized manufacturer recognized 00:33:40.369 --> 00:33:43.250 globally as a powerhouse in industrial gas processing, 00:33:43.569 --> 00:33:45.990 liquefaction and cryogenic technologies. And 00:33:45.990 --> 00:33:48.849 cryogenics is the science of extremely low temperatures. 00:33:49.150 --> 00:33:51.539 Right. Often used to turn gases into... to liquids 00:33:51.539 --> 00:33:54.480 for storage and transport. So why does this acquisition, 00:33:54.619 --> 00:33:58.240 valued at $13 .6 billion, instantly change Baker 00:33:58.240 --> 00:34:00.680 Hughes' competitive position? Because it provides 00:34:00.680 --> 00:34:03.119 the essential high -tech hardware required for 00:34:03.119 --> 00:34:05.440 both the hydrogen economy and large -scale CO2 00:34:05.440 --> 00:34:08.460 management. Hydrogen must be liquefied at extremely 00:34:08.460 --> 00:34:11.920 cool temperatures, around minus 253 degrees Celsius, 00:34:12.019 --> 00:34:14.460 to be economically transported and stored. And 00:34:14.460 --> 00:34:16.880 CO2 must also be highly compressed and often 00:34:16.880 --> 00:34:19.159 liquefied for injection into sequestration walls. 00:34:19.480 --> 00:34:21.980 And CHART provides the necessary togo machinery, 00:34:22.380 --> 00:34:24.460 heat exchangers, storage tanks, and specialized 00:34:24.460 --> 00:34:27.389 compression systems. So by absorbing CHART, Baker 00:34:27.389 --> 00:34:30.110 Hughes instantly acquires decades of sterilized 00:34:30.110 --> 00:34:33.090 expertise in industrial cryogenics. They go from 00:34:33.090 --> 00:34:35.489 being a hopeful participant in the energy transition 00:34:35.489 --> 00:34:38.190 to a fully integrated technology provider. Right. 00:34:38.349 --> 00:34:40.489 Capable of delivering the entire infrastructure 00:34:40.489 --> 00:34:43.530 for CCUS and hydrogen projects, challenging established 00:34:43.530 --> 00:34:46.250 industrial gas players like Lynn or Air Products. 00:34:46.550 --> 00:34:49.590 It accelerates their pivot by years, arguably 00:34:49.590 --> 00:34:52.809 making the IET segment equal in future importance 00:34:52.809 --> 00:34:55.550 to the Elvesi legacy business. The journey from 00:34:55.550 --> 00:34:58.440 the two cone bit. Invented in a rented 20 by 00:34:58.440 --> 00:35:01.679 40 foot shop to a company focused on cryogenic 00:35:01.679 --> 00:35:05.219 liquefaction for hydrogen is just, it's remarkable. 00:35:05.579 --> 00:35:08.179 It's a story of constant reinvention driven by 00:35:08.179 --> 00:35:10.300 the singular goal of efficiency and dominance. 00:35:10.639 --> 00:35:12.699 Yes. So what does this all mean for you, the 00:35:12.699 --> 00:35:14.559 listener? Well, if we connect this to the bigger 00:35:14.559 --> 00:35:16.920 picture, the modern Baker Hughes is a synthesis 00:35:16.920 --> 00:35:20.260 of genius level mechanical innovation at its 00:35:20.260 --> 00:35:22.559 root and relentless surgical corporate consolidation. 00:35:22.880 --> 00:35:25.420 They have mastered not only drilling deep holes, 00:35:25.579 --> 00:35:27.619 but the data, the chemistry and the materials 00:35:27.619 --> 00:35:29.940 needed to manage those holes efficiently. And 00:35:29.940 --> 00:35:32.820 the modern structure explicitly signals an intent 00:35:32.820 --> 00:35:35.300 to move beyond just oil services into becoming 00:35:35.300 --> 00:35:37.639 a holistic energy technology company. Right. 00:35:37.800 --> 00:35:40.000 Focusing on geothermal precision measurement 00:35:40.000 --> 00:35:42.639 and critically emissions management. The final 00:35:42.639 --> 00:35:44.639 takeaway for you is that the journey of Baker 00:35:44.639 --> 00:35:47.519 Hughes is a powerful story of corporate adaptation 00:35:47.519 --> 00:35:50.420 from being defined by revolutionary iron tools 00:35:50.420 --> 00:35:53.480 in 1908 to being defined by climate -focused 00:35:53.480 --> 00:35:56.599 software, high -pressure compression, and cryogenic 00:35:56.599 --> 00:36:00.239 technology in 2025. It's a blueprint for how 00:36:00.239 --> 00:36:02.920 a legacy energy company attempts to future -proof 00:36:02.920 --> 00:36:05.739 itself by strategically deploying vast amounts 00:36:05.739 --> 00:36:08.039 of capital. This raises an important question 00:36:08.039 --> 00:36:09.639 that you should keep in mind as you watch the 00:36:09.639 --> 00:36:12.250 energy sector evolve. Considering the company's 00:36:12.250 --> 00:36:14.869 long history of aggressive acquisition and contentious 00:36:14.869 --> 00:36:18.030 murders, especially the massive 2025 purchase 00:36:18.030 --> 00:36:20.849 of Chark Industries, how quickly can a company 00:36:20.849 --> 00:36:23.190 built on a century of traditional petroleum services 00:36:23.190 --> 00:36:26.690 truly pivot its core identity and massive operational 00:36:26.690 --> 00:36:29.750 infrastructure to deliver on its ambitious 2050 00:36:29.750 --> 00:36:32.809 net zero emissions pledge? The challenge isn't 00:36:32.809 --> 00:36:35.409 the technology, which they now own. It's the 00:36:35.409 --> 00:36:38.130 execution and the cultural shift required to 00:36:38.130 --> 00:36:40.630 deploy it at global scale while simultaneously 00:36:40.630 --> 00:36:42.889 managing the decline of their legacy business. 00:36:43.210 --> 00:36:45.530 A challenge for sure, and one that will define 00:36:45.530 --> 00:36:48.250 the next decade of the energy market. We will 00:36:48.250 --> 00:36:50.349 certainly be watching. Thank you for joining 00:36:50.349 --> 00:36:51.909 us, and we'll catch you on the next Deep Dive.