Baker Hughes

BAKER HUGHES

INDEPTH

Volume 13, No. 2, 2007

Special Edition July 2007

BAKER HUGHES

INDEPTH

Volume 13, No. 2, 2007

Special Centennial Issue July 2007

Editor Ron Bitto

Managing Editor Pramod Kulkarni

Contributors Michael Beyeler Soraya Brombacher Noel Atzmiller Isaac Kerridge Brenda Sharp Sheila Luebbert Howard Batt Craig Fleming Susan Bourgain Tom Haynes Kathy Shirley

Published by

Baker Hughes Incorporated P.O. Box 4740 Houston, TX 77210-4740 www.bakerhughes.com © 2007 Baker Hughes Incorporated. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means (electronic, mechanical, recording or otherwise) without the prior written permission of Baker Hughes Incorporated. Requests should be addressed to: Editor InDepth magazine Baker Hughes Incorporated P.O. Box 4740 Houston, TX 77210-4740 Contact us by e-mail at [email protected]

Art Director Eric Olson

Design Team Leader Shirley Leong

Artists

Jody Cockrell Summer Garner Victoria Quijano Beth Prete Oscar Sajche

April 15, 1922. The Mexia Field was discovered in Texas. Hobson, Blackstock and their crew drilled the well with a 133/4” Hughes Simplex bit. 

ACKNOWLEDGMENTS Acknowledgments

Houston Public Library, Joel Draut; R.C. Baker Memorial Library, Stephanie McHaney; Peter Bogniez, Oil & Gas Journal, World Oil, Hart Publications.

Bibliography

Material in this brief history of Baker Hughes came from numerous sources, including:

 Baker Story, Baker International, 1978.  100 Most Influential People of the Petroleum Century,

supplement to Oil & Gas Investor, Hart Publications, 2001.  50 Years of Offshore Oil & Gas Development, Hart

Publications, 1997.  A Century of Houston Energy, Houston Business Journal, 2001.  Baker Hughes annual reports, 1987-2006.  Baker Oil Tools and Baker International annual reports,

1975-1986.  Brantley, J.E.: The History of Oil Well Drilling, Gulf Publishing

Book Division, 1971.  Carestio, Michael; Cipriana Mecchi, Andrea: R.C. Baker

of Coalinga: A California Story, R.C. Baker Memorial Museum, Inc., 2005.  Clark, J. Stanley, The Oil Century, University of Oklahoma Press, 1958.  Directions, Eastman Christensen newsletter, 1987.  Eastman Survey, Eastman Oil Survey Company, 1956.  Flowline, Milchem newsletter, 1982.  From an Idea to an Industry: 50 Years with Dresser Atlas, Dresser Atlas, 1982.  GEMS, Christensen Diamond Products newsletter, 1953-1975.  Hughes Rigway magazine, Hughes Tool Company, 1976.  Hughes Tool Company annual reports, 1973-1986.  Hughes Tool Company catalog, 1965-66.  Knowles, Ruth Sheldon: The First Pictorial History of the American Oil and Gas Industry, Ohio University Press, 1983.  Petrolite…Legacy of a Pioneer, 75th anniversary newsletter, Petrolite, 1991.  Solutions, Baker Hughes INTEQ magazine, 1993.

Drillers on the rig floor after a successful run with a Hughes drill bit in the 1920s.

Additional sources include numerous brochures, catalogs and publications produced by companies that have been incorporated into today’s Baker Hughes. 

CONTENTS 1907-1917 A Century of Innovation Begins

6

1918-1927 Oil Boom during the 1920s

14

1928-1937 Oilfield Services Emerge

20

1938-1947 Modern Manufacturing, Supporting the War Effort

28

1948-1957 Post-War Growth

34

1958-1967 International and Offshore Markets

42

1968-1977 Broadening the Product Lines, Diversification

50

1978-1987 Boom, Bust and Consolidation

60

1988-1997 A Decade of Acquisitions

70

1998-2007 A New Century and a New Millennium 

80

A CENTURY OF INNOVATION I

n 2007, Baker Hughes is proudly celebrating 100 years in the oilfield service industry. This special issue of InDepth magazine tells the story of the individual pioneers and the companies that shaped today’s Baker Hughes. We trace our beginnings to the technological innovation and entrepreneurial spirit of Reuben Carl Baker who patented an innovative casing shoe in 1907, and Howard Hughes, Sr. whose roller cone bit revolutionized rotary drilling in 1909. Other innovators who contributed to the Baker Hughes legacy include:  William S. Barnickel, who founded the oilfield chemical industry and whose company would become Baker Petrolite.  Melvin DeGroote, Chief Scientist for Petrolite, who held 969 U.S. Patents, second only to Thomas Edison.  Bill Lane and Walt Wells, who invented well perforating and built a wireline service company that would become Baker Atlas.

companies were driven by entrepreneurs with vision, dedication and great personal energy. They focused on their customers’ needs and they weren’t satisfied until they exceeded their customers’ expectations. And their companies continued to innovate year after year, even after their founders retired or passed away. Baker Hughes has recognized recent innovators with Lifetime Technology Achievement Awards for their careers of innovation and for mentoring generations of younger technology professionals.

 H. John Eastman, the inventor of controlled directional drilling, which is now offered through INTEQ.

 John L. (Lindley) Baugh served for more than 40 years at Baker Oil Tools and received more than 60 U.S. patents for completions and liner hanger technology.

 Frank and George Christensen, who pioneered diamond bit technology, and whose vision established the first Celle Technology Center fifty years ago. Their legacy continues in both Hughes Christensen and INTEQ.

 During his 38-year career at Hughes Christensen, Rolf Pessier has advanced the company’s drill bit product lines and was awarded more than 55 U.S. patents.

 Cicero C. Brown, founded Brown Oil Tools and invented the liner hanger, now a major product line from Baker Oil Tools.  Max B. Miller and George Miller, two drilling fluids pioneers who founded Milwhite Drilling Mud and Oil Base Inc., respectively. Their innovations are now incorporated into Baker Hughes Drilling Fluids.  Vern Jones and the co-founders of Exploration Logging Company (EXLOG), providing surface logging, which is now an INTEQ service.  Ralph Spinnler and the Teleco engineering team, who designed and built the first commercial measurementwhile-drilling system. Their vision is now realized in INTEQ’s Answers-While-Drilling service. All of the predecessor companies that are part of the Baker Hughes heritage were born from innovative ideas that could be broadly applied in the oil and gas industry. These

 In a career that has spanned three decades, Volker Krueger has been instrumental in developing all of INTEQ’s drilling systems including drilling motors and rotary steerable systems, accumulating 37 U.S. patents along the way. In the 21st century, Baker Hughes people continue the company’s tradition of technological innovation and service, helping our customers achieve the reliable performance they need to efficiently find and produce hydrocarbons. I believe the brief history in this issue of InDepth magazine is just a preamble to even greater achievements for Baker Hughes as we strive to deliver what matters most to our customers, shareholders and the communities where we live and work.

Chad C. Deaton, Chairman and CEO Baker Hughes Incorporated 

1907-1917 6

BAKER HUGHES: A Century of Innovation Begins

R.C. Baker

Howard Hughes, Sr.

1872-1957

1869-1924

T

he Baker Hughes story began in the early 20th century, when two young men set out to make their fortunes in the booming new oil fields of California and Texas. Initially both men worked as wildcatters, but they achieved lasting success through technical innovations that would improve operations for the entire industry. In 1907, R.C. Baker received a patent on a casing shoe that advanced well cementing so much that it launched Baker Oil Tools. In 1909, H.R. Hughes, Sr. patented a roller cone bit that made it possible to drill through deeper, harder rock. This invention gave birth to the Hughes Tool Company. A century later, Baker Hughes carries on the tradition of technical innovation not only by its two founders, but also by the many other industry pioneers whose inventions and business lines became part of a global oilfield service leader. 7

1907-1917 R.C. Baker’s Inventions Launch Oilfield Equipment Business

I

n 1895, 22-year-old Reuben Carlton “Carl” Baker left his family’s marginal farm in Northern California, planning to prospect for gold in Alaska. When he reached the nearest train station, in Redding, California, he had no money to buy a ticket. To earn the fare to Alaska, he went to work in a stone quarry and slept in a nearby barn. After two weeks in the quarry, he had earned $24, but when he returned to the barn after work, he found that his clothes had been stolen. That night, an acquaintance cheered him up by telling him that oil had been discovered in Southern California. He wouldn’t have to wait to earn more money to travel to the Klondike. His $24 would be just enough to buy new clothes and a train ticket to Los Angeles.

An early casing shoe advertisement

Carl Baker arrived in Los Angeles on April 4, 1895 with a new suit, 95 cents in his pocket, and dreams of making his fortune in the town’s oil boom. First he hauled oil for drillers with a team of horses, and then he worked as an oilwell pumper, and as a tool dresser for a contract driller. When his employer, Irving Carl, couldn’t pay R.C. Baker’s wages, he made Baker his partner. By 1897, they had two rigs and a profitable business. In 1898, they divided their assets, and R.C. Baker started his own contract drilling business. R.C. Baker contracted to drill a well in Coalinga, California in 1899, the year that the “Blue Goose” gusher discovered a major field and sparked a boom in the area. Mr. Baker settled in the dusty boom town, and his contract drilling business prospered with steady work in the newly discovered Kern River oil fields. As a town leader in Coalinga, he helped organize several small oil companies, a bank and a local power and gas company.

R.C. Baker on the rig floor, 1940s

The original Baker casing shoe, 1907 8

While drilling around Coalinga, Baker encountered hard rock layers that made it difficult to get casing down a freshly drilled hole. To solve the problem, he developed an offset bit for cable tool drilling that enabled him to drill a hole larger than the casing. In 1903, he received his first U.S. patent for this invention. On July 16, 1907, Carl Baker patented his second invention, the Baker Casing Shoe, which improved the driving of cable tool casing, and led to the founding of a small royalty-collecting company that would eventually become Baker Oil Tools and Baker Hughes Incorporated. Because R.C. Baker had no facilities to manufacture his invention in 1907, he licensed independent machine shops to fabricate it on a royalty basis, and the Baker Casing Shoe was marketed nationwide. In 1912, R.C. Baker patented the first Baker Cement Retainer, which was designed to pack off between the casing and tubing when pumping cement through tubing. This invention made cementing more efficient and effective. During his time in Coalinga, Carl Baker also grew as a businessman. Although he continued as a contract oilwell driller until 1917, drilling oil wells occupied only a part of his time. His business interests included farming and oil production companies (which he sold in 1920).

A California oil field near Coalinga

The Baker Cement Retainer, invented by R.C. Baker in 1912, allowed operators to cement wells under pressure.

In 1913, R.C. Baker organized his own corporation – the Baker Casing Shoe Company – in response to the new U.S. income tax law, to protect his patents, and to collect royalties. For the next five years, royalties, mostly from the Baker Casing Shoe, ranged from $600 to $1,500 per month.

Southern Pacific Railroad Depot, Coalinga in 1907 9

1907-1917 Howard R. Hughes, Sr. Solves the Problem of Rotary Drilling

H

oward R. Hughes, Sr. was born in Missouri in 1869 and attended Harvard College and the State University of Iowa law school. By 1899, he was practicing law with his father in Keokuk, Iowa. Howard soon lost interest in the legal profession, and he moved to Joplin, Missouri to pursue a career in the lead and zinc mining industry. In 1901, Mr. Hughes heard news about the Lucas gusher at Spindletop near Beaumont, Texas. Oil seemed to hold better prospects than lead for making his fortune, so he hurried to Texas to enter the drilling business.

Sharp-Hughes Tool Co. plant in Houston. Walter Sharp (inset) was Howard Hughes’ partner until his death in 1912.

Mr. Hughes formed a partnership with Walter Sharp in a contract drilling business operating in Texas and Louisiana. Although cable tool (impact) drilling was still prevalent, many drillers along the Gulf Coast used the rotary drilling method with fishtail bits that scraped through clay and soft shale. Penetration slowed or stopped, however, when the bit reached harder formations. By 1906, Mr. Hughes began working on ways to use the rotary method to efficiently drill through harder rock.

The original twocone rotary drill bit that launched the Hughes Tool Co.

Prior to the invention of the Hughes rotary bit, wells were drilled with fishtail bits. 10

Employees operate belt-driven lathes at the original Hughes Tool Company plant, 1909.

Walter Sharp died in 1912, and Howard Hughes purchased Sharp’s half of the business. The company was re-named Hughes Tool Company in 1915. By 1914, roller cone bits had been successfully run in 11 states in the U.S. and 13 other countries. One customer of the period wrote, “I feel sure that you have reached the solution of a problem, which has long been the chief drawback in the rotary system of drilling.”

Goose Creek oil field, adjacent to the Houston Ship Channel, where Howard Hughes, Sr. first tested the two-cone steel bit Then one day in 1907, Hughes visited a machine shop in Sour Lake, Texas where his drilling tools were being repaired. There he noticed an emery wheel with two outer wheels moving in one direction and an inner wheel moving in the opposite direction. He realized that the same concept could be applied to a multi-cone rock cutting tool. He conducted experiments and built a wooden model of a drill bit with two cone-shaped, rolling cutters.

During World War I, Howard Hughes, Sr. invented and developed a horizontal boring machine for undermining enemy strongholds and artillery positions. He was assisted by officers of the Russian and British armies prior to the entry of the United States into the war and by U.S. Army engineers after America joined the fight. The war ended before the machine was used. (The original device is kept in the drilling simulator lab at the Hughes Christensen facility in The Woodlands.)

Then in 1908, Hughes and Sharp built the first two-cone bit made of steel. Rather than scraping against the formation as fishtail bits did, the new roller cone bit was designed to crush and grind the rock. The partners conducted two secret tests on a drilling rig in Goose Creek (now Baytown), Texas. Each time, Hughes asked the drilling crew to leave the floor. Then he pulled the bit from a locked wooden box, and his associates ran the bit into the hole. The drill pipe twisted off on the first test, but the second was extremely successful.

Hughes Tools’ first research lab. Note the blocks of rock drilled in this derrick laboratory. Bits were tested on the steam-driven rotary drilling machine, purchased in 1911.

In 1909, the Sharp-Hughes bit was granted a U.S. patent. In the same year, the partners formed the Sharp-Hughes Tool Company in Houston. The first plant occupied a rented space of 20 by 40 feet in the corner of the old Houston Car Wheel and Machine Company on Washington Avenue. In 1910, the Sharp-Hughes company established the first drill bit research lab where bits were tested on a steam-driven hydraulic rotary machine. Numerous advances followed, making drilling more efficient and reducing the cost per foot. The Sharp-Hughes bit was so successful that by 1911 the plant was moved to a larger shop equipped with modern tools, where the company operated until a new, larger plant was needed in 1918.

Hughes with his horizontal boring machine 11

1907-1917 William S. Barnickel’s Demulsifier Recovers Oil from “Basic Sediment”

I

n 1907, a 29-year-old chemist named William Sidney Barnickel traveled from St. Louis to visit the Glenn Pool oil field in Oklahoma where large quantities of oil were wasted because they were mixed with water that had been produced along with it. Such “cut” oil, known as “basic sediment,” was either burned or dumped into creeks near many of America’s oil fields. Seeing this waste and contamination, Barnickel began working on the problem of separating oil from water. In December 1911, he discovered that a chemical agent, a sulfate of iron (copperas), could efficiently do the job, and in 1913 he applied it to recover 56,000 barrels of oil from basic sediment at the Caddo field in Oklahoma. After several tries, he was finally granted a U.S. patent for the chemical treatment on April 14, 1914.

William S. Barnickel received a U.S. patent for the process to chemically recover oil from basic sediment and launched the company that is now Baker Petrolite.

Determined to manufacture large quantities of his chemical that could be readily shipped throughout the country, Mr. Barnickel returned to St. Louis to outfit a factory. He sold the first two barrels of Tret-O-Lite on November 17, 1917. On that day, the company that would become Baker Petrolite had begun commercial operations.

A Ford Model T car used by Tret-O-Lite representatives to service the early oil fields

William S. Barnickel (left) with one of the first barrels of Tret-O-Lite demulsifier 12

Year

The World

Energy Industry

Technology

Baker Hughes Milestones

World’s first oil wells are drilled on the Aspheron Peninsula northeast of Baku.

1848 1859

Charles Darwin publishes “Origin of Species.”

Col. Drake drills America’s first well to discover oil in Pennsylvania.

Drake well was drilled with a 40-ft wooden derrick to a depth of 69 ft. The well produced 20 barrels of oil per day.

1866

First underwater telegraph cable between North America and Europe, 1,686 miles long.

Digboi field discovered in northeast state of Assam in India.

Diamonds discovered in South Africa.

1901

Commonwealth of Australia formed.

Spindletop discovery at 1,020-ft depth creates Texas oil boom.

Fishtail bits used to drill wells.

1903

Marie Curie announces her discovery of radium.

First transcontinental auto trip completed.

Marconi broadcasts the first transatlantic radio message from Cape Cod to England.

R.C. Baker introduces offset bit for cable tool drilling.

1907

• First electric washing machine invented. • Picasso introduces Cubism.

First tubular steel derrick built.

• R.C. Baker receives a patent on a casing shoe that launched Baker Oil Tools. • William Barnickel begins work on the problem of saving waste oil (water/oil emulsion).

1908

Henry Ford builds the first Model T.

Hydraulic rotary rig introduced in California fields.

Howard Hughes secretly tests first roller cone bit at Goose Creek, Texas.

1909

• 200,000 Americans own cars. • Plastic is invented. • Robert Peary becomes the first to reach the North Pole.

J.B. Speed and F.G. Cottrell introduce an electrostatic oil/water separator in Coalinga, California.

H.R. Hughes, Sr. patents a roller cone bit that made it possible to drill through deeper, harder rock.

1910

• Boy Scouts established in the U.S. • Halley’s comet makes an appearance.

Lakeview Gusher blows in near Taft, California, and becomes America's greatest oil gusher.

1911

• Charles F. Kettering develops an electric automobile starter so gasoline powered cars no longer need a crank. • Greenwich Mean Time adopted.

• Standard Oil Trust broken up. • Beldridge field discovered in California.

1912

S.S. Titanic sinks.

Cushing field discovered in Oklahoma.

1913

• U.S. has 1.26 million automobiles. • Henry Ford creates the assembly line.

• Charles Gould presents theory of petroleum geology based on anticlines. • Standard Oil of Indiana adopts cracking process to refine gasoline.

William Meriam Burton receives a patent for his cracking process, which converts oil to gasoline.

• R.C. Baker organizes his own corporation – Baker Casing Shoe Company. • Barnickel reclaims 56,000 barrels of oil from Caddo field waste, but is cheated out of his share of the profits. • A. Wright dies, leaving B.D. Adamson as PETRECO president.

1914

World War I commences.

Venezuela’s first gusher drilled near Lake Maracaibo.

W.S. Barnickel patents an oil/water demulsifier.

Barnickel receives a patent for his demulsifying agent.

1915

British steamship Lusitania is sunk by a German submarine, leading to U.S. entry into World War I.

Ventura field discovered in California.

• Rotary table with square kelly and bushings comes into use. • All-steel sprocket chain introduced.

The Sharp-Hughes company is re-named Hughes Tool Company.

1916

Henry L. Dougherty installs nighttime lighting for the Statue of Liberty in New York Harbor.

Name "Pennzoil" trademarked by Pennsylvania Refining Company.

Two-speed drawworks hoist with brake becomes standard.

Barnickel builds his first factory in St. Louis.

1917

Russian revolution leads to Communist state.

The first long-distance high-voltage transmission line is built by American Gas & Electric.

Standard tool joint and Acme tool thread developed.

• First two barrels of Tret-O-Lite chemical treatment are sold. • Hughes introduces reaming cone bit.

Oil is discovered in Persia.

Sharp-Hughes Company establishes the first drill bit research lab where bits are tested on a steam-driven hydraulic rotary machine. Schlumberger brothers invent electric well logging.

William Barnickel discovers that a sulfate of iron (copperas) can demulsify oil and water.

• R.C. Baker patents the first Baker Cement Retainer. • Walter Sharp dies. • Howard Hughes purchases Sharp’s half of the business.

13

1918-1927 14

Oil Boom during the 1920s

T

he 1920s were an exciting time for the oil industry. In 1921, oil was discovered in the Los Angeles Basin at Signal Hill, Huntington Beach and Santa Fe Springs. To meet the increasing demand for drilling equipment, the Baker Casing Shoe Company started manufacturing operations and Hughes Tool Company launched new products to improve drilling and reaming in deeper and harder formations. By the end of the decade, both companies had expanded their operations in California, the Mid-continent and Texas. Meanwhile, Tret-O-Lite and Petreco were competing with each other to separate water from produced oil in the California oil fields.

15

1918-1927 Baker: Entrepreneur to Manufacturer

I

n 1918, Mr. Baker became a manufacturer, when Baker Casing Shoe Co. bought a machine shop in Coalinga, California, for $52,000. The early manufacturing facilities were meager, with 3,400 square feet of floor space, two lathes, a drill press, a power saw, a shaper and one pipe-threading machine. The new plant manufactured Baker casing shoes, dump bailers, clean-out bailers and cement retainers, as well as other equipment that the company had been licensed to manufacture. The oil boom in the Los Angeles area in the early ‘20s was a period of rapid growth for the Baker Casing Shoe Co. In 1922, Baker built a new plant and headquarters in Huntington Park, California. In addition to other Baker products, this plant produced tool joints, which were in great demand in the new oil fields.

Baker Casing Shoe Co. started manufacturing in this building in 1918.

By 1924, much of the company’s sales came from the Mid-Continent area, and a branch office was opened in Tulsa to handle the increasing business. Branches were also established in Bakersfield and Taft, California in 1924, and an export representative was established in New York. By 1927, Texas provided a significant sales volume, and a warehouse and office were established in Houston. In 1927 Baker gained industry leadership in cementing-related tools with the introduction of a complete line of guiding, floating and cementing equipment, including a drillable cement float shoe and collar and a cement guide shoe.

During the 1920s, Baker added variations to the casing shoe and new products for cementing.

Office and factory in Huntington Park, Los Angeles 16

Howard Hughes, Sr.: Advancing Rotary Drilling As wells were drilled deeper through harder formations, the Hughes Tool Company added reamers to the two-cone bits to help maintain full gauge hole and to stabilize the bit. In 1917, Hughes introduced a reaming cone bit equipped with two regular cones in addition to a reamer built into the body of the bit. In 1921, the Simplex bit was introduced. The design had a replaceable wash pipe down the center of the bit that allowed for the use of more powerful mud pumps. The new bit achieved dramatic improvements in the rate of penetration. The concept of footage drilled per bit was introduced at this time. In 1924, Howard R. Hughes, Sr. died at the age of 54, and left his fortune and the Hughes Tool Company to his only son. Howard. R. Hughes, Jr., then an 18-year-old student at Rice Institute, would use the profits from Hughes Tool Company to pursue his interests in aviation, motion pictures and real estate.

Hughes Tool Company plant in 1917.

Hughes bit with self-cleaning cones was used to drill through Austin Chalk in the Luling Field.

In 1925, the company opened a branch in Los Angeles and introduced self-cleaning cones that more than doubled the penetration rates of rock bits.

Hughes 133/4” bit used for a Burmah Oil Company well, 1927

Howard Hughes, Jr. during one of his few visits to the Hughes Tool Company plant

17

1918-1927 Tret-O-Lite and PETRECO Grow through Competing Technologies

B

y 1921, William Barnickel’s Tret-O-Lite business had outgrown his initial manufacturing plant, so he built a new one in Webster Groves, Missouri. The new facility had six times the capacity of the old plant and was built on a hillside so that raw materials were unloaded from a railroad line on the top of the hill, and the fluids flowed through the plant using the force of gravity. Finished product was loaded on rail cars at the bottom of the hill. In 1922, the company sold 10,815 drums of Tret-O-Lite demulsifier, representing a recovery of 50 million barrels of oil from produced oil/water emulsion. In 1923, Mr. Barnickel died at the age of 45, and John S. Lehmann succeeded him as Tret-O-Lite president.

Tret-O-Lite demulifier barrels ready for shipment to oil fields

Meanwhile, Frederick Cottrell and James Speed were developing electrostatic methods for separating oil from water. In 1910, Allen C. Wright formed the Petroleum Rectifying Company of California (PETRECO), which built electric dehydrating plants – based on Cottrell’s and Speed’s inventions – to serve California oil fields. By 1922, PETRECO had 417 treaters in operation.

Melvin DeGroote: The Inventor In 1924, Melvin DeGroote (1895-1963) joined Tret-O-Lite as chief research chemist. During his career, the company’s laboratory conducted more than a half-million experiments on more than 93,000 compounds. By the time he retired from Petrolite in 1960, DeGroote had earned 963 U.S. patents, making him the most prolific inventor of his era (second only to Thomas Edison in the number of patents). Under his leadership, the company became an industry giant.

A worker makes a barrel test with Tret-O-Lite demulsifier in the Cushing Field in 1918.

18

DeGroote invented and patented many of the demulsifying agents that separate crude oil from salt, sulfur and water (a process necessary before raw petroleum can be refined into gasoline and other products). Without demulsification, most of the oil pumped in the United States for the last century would have been too corrosive for pipelines or tankers and would have been discarded. DeGroote’s inventions of chemical demulsifiers contributed to the development of the modern oil industry by making more types of crude suitable for refining.

Year 1918

1919

1920

1921

1922

1923

1924

1925

1926

1927

The World

Energy Industry

Technology

Baker Hughes Milestones

• Tsar Nicholas II, his wife, and children, are murdered by the Bolsheviks. • World War I ends.

• First curbstone gas pump introduced in 1918. • First U.S. gasoline pipeline carries gasoline 40 miles, from Salt Creek to Casper, Wyoming.

Howard Hughes, Sr. invents a horizontal boring machine to place explosives under WW I trenches, but war ends before it is used.

Baker Casing Shoe Company starts manufacturing shoes and other products.

Prohibition starts in U.S., banning sale of alcohol.

• Earle Halliburton establishes a cementing service in Oklahoma. • The first state gasoline tax of one-cent per gallon levied by Oregon for road construction.

Rotary rigs begin replacing cable-tool rigs.

Hughes Tool Company establishes a new manufacturing plant and general offices in Houston.

• Women gain the right to vote in the U.S.A. • League of Nations established. • Jack Dempsey knocks out Jess Willard for the heavyweight crown.

• Mexia field discovered in Texas based on W.E. Pratt’s theory that faults trap oil. • Elk Hills field discovered in California. • Giant field found in Burbank, OK.

• Mud-laden drilling fluid used. • First core barrel sampling tools used in California and West Texas. • Steel derricks begin replacing wooden derricks.

Tret-O-Lite establishes a new manufacturing plant in Webster Groves, Missouri.

First stretch of the Autobahn completed in Germany.

Oil discovered at Signal Hill, Huntington Beach, Santa Fe Springs, California, expanding Los Angeles oil boom.

Thomas Midgley Jr. discovers that tetraethyl lead prevents "knock" in gasoline engines.

Hughes introduces the Simplex drill bit.

British Egyptologists unearth King Tutankhamen's tomb in the Valley of the Kings.

• Oil discovered in Venezuela. • U.S. Geological Survey predicts that the U.S. only has enough oil supply to last 20 years.

Talking movies invented.

• Teapot Dome scandal • Ford introduces the “Roadster.” • Garrett Morgan invents the traffic signal.

• V. I. Lenin dies. • First Olympic Winter Games

• Oil found in West Texas’ Permian Basin.

Tret-O-Lite Co. sells 10,815 drums of demulsifier. PETRECO has 417 treaters in operation.

Seismic method is used in Mexico for the first time to search for petroleum.

• Baker float shoe introduced to improve cementing. • W.S. Barnickel dies at age of 45, of a perforated ulcer. John S. Lehmann takes over as Tret-O-Lite president.

• Howard Hughes, Sr. dies, at age 54, leaving Howard, Jr., age 18, in charge of Hughes Tool Company. • Melvin DeGroote joins William S. Barnickel & Co. Eventually he would hold 963 patents, making him the world’s greatest living inventor.

Hughes introduces Acme Selfcleaning cones, for improved drilling in soft formations.

• Hitler publishes Mein Kampf. • The Scopes (Monkey) trial

• Airmail service begins in the U.S. • Robert Goddard successfully tests first liquid-fueled rocket.

Borger field discovered in Texas Panhandle.

• Lindbergh flies solo across Atlantic. • First demonstration of long-distance television.

• Oil discovered in Kirkuk, Iraq. • Seminole field discovered in Oklahoma.

Spindletop production reaches its all-time annual high of 21,000,000 barrels.

Baker introduces complete line of cementing equipment. Also manufactures tongs, core barrels, bailers and other tools.

19

1928-1937 20

Oilfield Services Emerge

Baker Oil Tools started offering “coreing” services during the 1930s.

T

he oil industry has ridden the “boom-to-bust” cycle many times during its history, but the stock market crash of 1929 and its impact on world economy increased the impact of these energy demand cycles. The Depression affected the growth of Baker Hughes fledgling companies as survival became the watchword of many industry entrepreneurs who had invested heavily in start-up operations and manufacturing capabilities.

21

1928-1937 Baker’s Growth and Downturn H. John Eastman

In 1928, Baker Casing Shoe Company was renamed Baker Oil Tools, Inc. to reflect its broad range of products and services. By 1929, Baker Oil Tools had grown to 96 employees with its best year ever of $868,000 in revenues. The future looked bright. But Baker did not escape the crash unscathed. Only three years later, BOT reached a low point when income dropped to $299,000 and Carl Baker was forced to lay off employees who had been with him from the start of the company. But there were also bright spots within the industry during the Depression years. One of the brightest was early recognition that “services” could be offered profitably to the oil field in addition to building equipment and selling it directly to individual oil companies. This concept of professional expertise in the field to support manufactured products would create a whole new sector of the industry...oilfield services. Services became even more important as oil companies expanded operations throughout North America and to growing overseas markets. With far-flung operations, oil companies grew to depend upon service companies to provide local expertise and technically sophisticated products demanding special knowledge and skills. Effectively providing this service would differentiate Baker Hughes throughout the company’s history.

An Eastman automobile at a California oil field with directional survey instrument mounted on the passenger side

Service Becomes a Science with Eastman A prime example of oilfield services was the evolution of “controlled directional drilling.” In the late ‘20s, H. John Eastman went into business for himself with a truck, a winch, a built-on darkroom and 7000 ft of cable. He used an acid bottle as the primary drift indicator and went up and down the California coast soliciting survey business. Alexander Anderson, a local inventor and watch maker, helped him build the first multi-shot survey instrument, and then they invented a single-shot survey instrument. These instruments were the basis of a science that made controlled directional drilling possible.

The 1934 Conroe fire and its crater

In 1929 Mr. Eastman introduced the concept in Huntington Beach, California, of using whipstocks and magnetic survey instruments to deflect the drill pipe from shore-based rigs to reach oil deposits offshore. For the first time, the oil industry could drill angled wells on a controlled trajectory instead of drilling only “straight” wells, which were often deflected by subsurface geology. In 1934, Mr. Eastman gained further acclaim and industry-wide credibility for directional drilling techniques when he drilled the world’s first relief well to control a blowout in Conroe, Texas that

22

had been on fire for more than a year. Mr. Eastman was soon called upon to use controlled directional drilling to kill blowouts around the world. Today, INTEQ carries on this leadership in directional drilling established by the original Eastman Oilwell Survey Company that H. John Eastman founded in Long Beach, California.

Lane and Wells Invent Bullet Perforating In 1932, Bill Lane and Walt Wells developed the first gun perforating system and started an oilfield service business in Vernon, California. That year Lane’s oilfield experience and Wells’ engineering expertise were tested with Union Oil’s backing on La Merced #17, a 2500-foot well that had gone dry in the Montebello oil field near Los Angeles. The new enterprise depended upon an ungainly looking contraption Eastman drilled a dangling above the wellhead, representing more than two years of directional well in 1935 to help engineering work for Lane and Wells. It was described as a “string kill a well blowout in Romania. of coconuts.” Beneath the coconuts was the first crude bullet gun perforating system. Eight days later, after 87 shots were fired in 11 Bill Lane (left) and Harry Quintrell with runs, the well flowed 40 barrels a day of California crude. With this their first perforating gun, 1932 first successful job on March 19, 1932, the Lane-Wells Company (which would become Baker Atlas) was in the perforating business. With the successful test, Lane-Wells faced a new challenge, laboring over ways to improve the cable and how to design a truck to carry the service into the field. At the end of 1933, Perforating Truck #1, a ‘32 Ford chassis and engine, rolled out of the Santa Fe Avenue office/shop in Los Angeles with a new insulated conductor wire as a core for the cable. In spite of the Depression, demand was brisk for the innovative perforating services and oil tools offered by Lane-Wells. Continuing improvements in engineering design led to the replacement of the “string of coconuts” with a 10-shot perforating cylinder, making jobs easier from a mechanical standpoint. The Lane-Wells reputation spread quicker than its ability to respond and its famous slogan “Tomorrow’s Tools Today” painted on the driver’s side of cabs furthered the company’s visibility in the oil field while performing work. The company learned quickly that providing quality service to the nomadic oil field would be a continuing challenge and in the mid ‘30s more perforating trucks were added to the fleet as crews worked 100-hr weeks to catch up with increasing business. In 1935, truck #4 spent two days and nights firing 300 shots working in snow and high winds in New Mexico then continued on to Arkansas and after another 24 hours of shooting headed for Oklahoma. An office was soon established in Houston to improve logistics and in 1937 Lane-Wells expanded into the Mid-Continent with an Oklahoma City shop.

Lane-Wells’ first truck was custom built in 1933. 23

1928-1937 Miller Finds the Right Mix for Drilling Fluids

I

n the early years, the drilling fluid used in cable-tool rigs was mostly water to soften the earth and make it more pliable for drill-bit penetration. As rotary rigs supplanted cable drilling and roller-cone bits proved themselves, more elaborate drilling fluids called “muds,” were developed and introduced into the borehole to cool and lubricate the bit, circulate the rock cuttings from the bottom of the hole to the surface, and hydrostatically balance the drilling-fluid column. With the expansion of the industry in the ‘20s and ‘30s, opportunities unfolded to introduce even better drilling fluids to enhance drilling efficiency.

A Milwhite representative tests fluid samples from his mobile laboratory.

Soon drilling muds were “weighted up” using barite or similar products to counter the higher pressures that were experienced as formation depths increased. This helped prevent the dreaded blowouts. Initially, mud materials were low-cost waste products from other industries, but as oil companies drilled deeper, hotter holes, higher fluid densities were needed and the industry began developing specialty chemical products designed for specific purposes. The Max B. Miller company originally began in New York to design, sell and construct patented oil-manufacturing processes. During the ‘20s, the company developed and held several patents in the field of refinery construction and in 1925 the company devised a process of contact filtration control using California clay as a filter medium. With limited applications for the process in the mining industry, the company began to look for a larger market. They found it in the oildrilling business, and in 1931 moved to Texas to form the Milwhite Company. The “Mil” in Miller and the “White” from the color of the California clay were combined to name the Milwhite enterprise that continued its contact filtration clay operations. The company also started mining and grinding drilling mud clays, and explored for barite, which was used as a drilling mud weighting agent. Sourcing was key to the company’s growth so Milwhite first mined barite in the now famous Magnet Cove Area of Arkansas until the late ‘30s. Then, Milwhite and Magnet Cover Barium Corporation (later to become Magcobar) signed a contract to process Magnet Cove materials jointly.

Baker Model “K” cement retainer

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The Rebound Begins After retrenching during the worst of the Depression, oilfield companies began to introduce new technologies and expansion plans. As the general economy began to recover, demand for oil also increased, especially as more cars were manufactured and train systems converted to diesel fuel. The Baker cement retainer product line achieved a competitive advantage during this period with the Baker Model “K” tool. It would have a major impact on the company’s growth as high-pressure squeeze cementing became common practice. By 1936, Baker Oil Tools’ business had increased so much, especially in the Mid-Continent, that the company built a new manufacturing plant in Houston. By the end of the year, the company passed the $1 million mark in sales and the number of employees had grown to 160.

Baker Oil Tools manufacturing plant in Houston, 1936

First Tricone® Bit During the 1930s, Hughes Tool Company kept improving on its technologies. In 1933, the company introduced the first Tricone® bit, which featured interfitting teeth and could be customized for specific formations. Hughes began hardfacing bit cutting surfaces and introduced anti-friction bearings, staggered teeth and cantilevered bearing shafts to make hole faster and cheaper. The combination of roller cone bits and better drilling fluids had significantly improved drilling performance.

Hughes Tool Company employees in front of the manufacturing plant, in Los Angeles

Invented in 1933, the Tricone bit has seen many improvements, but remains a workhorse of the drilling industry.

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1928-1937 Petrolite is Formed Throughout the 1920s, Tret-O-Lite, Inc. (which used chemical demulsifiers) and PETRECO (which used electric dehydrating towers) competed to provide oil/ water separation services to recover oil from produced “basic sediment.” In 1929, Tret-O-Lite, Inc. merged with another chemical supplier Vez Company, to form Tuxedo Corp. In 1930, Tuxedo and PETRECO merged to form Petrolite Corporation, which brought together their radically different technologies to treat oilfield and refinery hydrocarbons. One early outgrowth of the union was the first electrical desalter, which was installed at the Ashland Oil Co. refinery in Cattlesburg, Kentucky in 1936.

Business in the California boom fields, like Signal Hill seen below, fueled Petreco expansion elsewhere. Petreco’s D.C. Norcross would become Petrolite’s first president.

C.C. Brown invents the Liner Hanger In 1929, Cicero C. Brown founded Brown Oil Tools in Houston to provide oil tools and services. In 1937, he patented the first liner hanger. Liner hangers enabled drillers to lengthen their casing strings without having the liner pipe extend all the way to the surface, saving capital cost and reducing the weight borne by rigs. Brown Oil Tools continued to advance liner hanger technology and also manufactured casing centralizers and other completion equipment. In 1978, Hughes Tool Company acquired Brown Oil Tools. In 1987, the Brown liner hanger line became part of Baker Oil Tools, which by that time had also developed liner hanger systems. Today, liner hangers are the largest product line in BOT.

C.C. Brown patented the liner hanger in 1937.

From Bits to Beer Once the prohibition ended in 1933, Howard Hughes, Jr. decided to take advantage of the repeal by getting into the brewery business. Hughes turned to Frantz H. Brogniez, a master brewer, who had created the Southern Select beer prior to Prohibition. Southern Select had won the 1913 Grand Prix in Belgium in a contest against 4,600 other beers. Hughes’ Gulf Brewing Co. held a contest to select “Grand Prize” as the name for the new beer to commemorate the Grand Prix. Grand Prize was a popular beer in Texas until 1963, when it was purchased by the Theodore Hamm Company of Minnesota.

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Grand Prize beer truck and can

Year 1928

1929

1930

1931

1932

1933

1934

1935

1936

1937

The World • Kellogg-Briand treaty outlaws war. • Penicillin discovered.

Energy Industry

Technology

Baker Casing Shoe Company changes its name to Baker Oil Tools, Inc.

Texas oilman Louis Giliasso launches offshore drilling by mounting a derrick and drilling rig onto a submersible barge.

• H. John Eastman obtains patents on multi-shot instrument and whipstock, introduces controlled directional drilling. • Hughes first applies tungsten carbide hardfacing to cutting structures.

• Stock market crashes, leading to the Great Depression. • U.S. has 27 million cars and trucks.

Baker Hughes Milestones

• Eastman Oilwell Survey formed in Long Beach, California. • W.S. Barnickel Co. is renamed Tret-O-Lite, Inc., then merges with Vez Company to form Tuxedo Corp. • C.C. Brown founds Brown Oil Tools, a pioneer in liner hangers.

• Sliced bread is available. • Stalin collectivizes agriculture in USSR.

• Dad Joiner finds East Texas oil field, makes H.L. Hunt wealthy. • E.L. DeGolyer proves the reflection seismograph technique.

Empire State building completed.

World’s oil markets flooded by the over production of East Texas oil fields.

• Max B. Miller develops drilling mud based on white clay. • Hughes Tool Co. introduces first drill bits with antifriction bearings.

• Milwhite Company formed, moves from California to Texas. • Gulf Brewing Company brews Grand Prize beer at the Hughes Houston rock bit location.

• FDR elected. • Scientists split the atom.

• Schlumberger brothers commercialized electric well logging. • Oil discovered in Bahrain.

Lane-Wells Company introduces bullet gun perforating.

Lane-Wells Company formed in Vernon, California by Bill Lane and Walt Wells.

• Prohibition ends. • Adolph Hitler elected Chancellor of Germany. • FDR launches the New Deal.

Gas lift valves developed.

Hughes introduces the first Tricone bit.

• Drought creates Dust Bowl in Oklahoma. • Parker Brothers launch “Monopoly” board game.

Tuxedo Corp. merges with PETRECO to form Petrolite Corporation.

H. John Eastman drills the world’s first relief well to kill a blowout in Conroe, Texas.

Baker Oil Tools opens Oklahoma City branch.

Frank and George Christensen meet while playing professional football for the Detroit Lions. Their friendship leads to the formation of Christensen Diamond Products.

• Amelia Earhart flies solo across the Pacific Ocean. • Social Security established in the U.S.

Humble Oil Co. discovers Anuhuac field in Texas.

First flight of airship Hindenburg

Standard Oil of California strikes oil in Saudi Arabia’s Damman field.

Petrolite installs a desalter at a refinery in Kentucky.

• Texas Co. joins Standard Oil in Saudi Arabia, leading to the formation of Aramco.

• C.C. Brown patents the liner hanger. • Horizontal drilling takes place in Yarega, USSR.

Baker Oil Tools opens Houston manufacturing plant.

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1938-1947 28

Modern Manufacturing, Supporting the War Effort

I

n 1938, Adolf Hitler occupied Austria, and Europe seemed headed toward another world war. Meanwhile, the fledgling Baker Hughes companies were transitioning from small-scale shops to modern manufacturing facilities equipped with machine tools and other processes. As Baker Oil Tools expanded from its California base into the Mid-Continent and southwest U.S., Hughes Tool Company was also expanding nationwide.

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1938-1947 Hughes Expands its Horizons Over the decade, the Hughes product line was extended to core bits, tool joints and drill collars. Simultaneously, Hughes Tool’s geographic coverage was expanded virtually nationwide through regional offices in California, Wyoming, Oklahoma and Midland. An export office was established at the Rockefeller Plaza in New York and international representatives were based in London, Buenos Aires and Caracas. As Hughes Tool Company expanded, so did the interests of its young president. Howard Hughes, Jr. financed his endeavors in aviation and motion pictures in Hollywood with profits from the company he had inherited.

Howard Hughes, Jr. (center) waves to the crowds during a 1938 parade in downtown Houston to commemorate his flight around the world in record time.

Christensen Diamond Products In 1944, Frank and George Christensen founded the Christensen Diamond Products Company in Salt Lake City, Utah, and in 1946 introduced diamond core bits to the mining industry. Within a few years their business had expanded to helping oil and gas companies take samples from exploratory wells in the Rocky Mountains. By 1952, they were manufacturing and selling natural diamond drill bits for use in hard formations. The two men were unrelated, and had met in 1935 when they were teammates on the Detroit Lions football team. Before they joined forces, Frank’s family owned a machine shop and George had a business making diamond cutting tools.

Early Christensen diamond core bit

Frank and George Christensen (left to right) were football teammates who combined their resources to launch the diamond bit company.

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Baker Broadens its Base By 1938, Baker Oil Tools’ product range had extended to cement guiding and floating equipment, cement retainers, rotary wall scrapers, a portable hydraulic Kelly and a pipe straightener. These “practical and dependable” tools were on display at the International Petroleum Exposition in May. Baker had a “rolling exhibit” that covered some 40,000 miles and 24 states, providing “oil tool education on wheels.” In 1942, Baker Oil Tools introduced the Model D Packer, which enabled multiple completions in the same well. The design was driven, in part, by the shortage of steel during World War II. The Model D Packer is still sold today.

Growth at Lane-Wells By 1938, the Lane-Wells Company had outgrown its original workshop and moved into a 10-acre site at 5610 South Soto Street in Los Angeles. The company now offered three services: gun perforating, electrologging, and oilwell surveys. Products included packers, liner hangers, survey instruments, knuckle joints, whipstocks and mills. Perforating services were extended during this decade into the Mid-Continent region through a shop in Oklahoma City. While Walt Wells was in charge of marketing, Bill Lane was supervising field operations and engineering. In 1938, Lane announced his retirement. He passed away in 1949.

A Baker Oil Tools rig technician lowers the Model D packer into a well.

In 1939, Lane-Wells secured an exclusive license from Well Services Inc. (WSI) to build a gamma ray log that could identify the exact zone that should be perforated. The next major innovation came in 1944 with the deployment of the reverse concentric armored cable, which improved the accuracy of downhole measurements. A product of war ordnance – the bazooka – enabled Lane-Wells to introduce the precise shaped-perforating charge. The magnetic collar locater came in 1947. By this time, the company had expanded operations internationally to Lake Maracaibo in Venezuela and to Trinidad.

Baker Oil Tools employees on the rig floor with the Kelly straightener Lane-Wells building at the Tulsa Oil Show, complete with the mockup of a perforator on top with sequentially flashing lights to simulate the firing of shots 31

1938-1947 Eastman Extends Directional Drilling During the 1930s and ‘40s, H. John Eastman directed most of the shoreline drilling under the ocean in the Huntington and Long Beach Harbor areas. In 1941, the company headquarters were moved from Long Beach to Denver. In the Rocky Mountain region, slanted wells were drilled to reach sweet spots underneath mountain ranges.

Oil Base Drilling Fluid In May 1942, Oil Base Drilling Company, headed by its founder George Miller, made the first commercial application of its Black Magic® oil-based mud.

An Eastman orienting tool is unhitched from a car at a California oil field.

Contributing to the War Effort During World War II, Baker Oil Tools began dual operations to help the war effort, dividing its plant between oilfield and defense manufacturing. Baker’s war production included recoil mechanisms for cannons, and parts for M-5 tanks. In 1943, the company earned the Army-Navy “E” Flag for its wartime contributions. The Hughes Tool Company established a Gun Plant in Dickson, Texas to manufacture howitzers and struts for military aircraft landing gear. Lane-Wells Company also joined the war effort, producing electrical components for munitions. Part of its South Soto Street factory in Los Angeles was switched to the production of projectiles, launching mechanisms, fuses for submarine rockets, and airspeed indicators.

Oil Base Drilling Company introduced the first oil-based drilling fluid in 1942.

Baker Oil Tools received the Army-Navy E award for contributing toward the war effort. Similar awards were presented to the Hughes Tool, Lane-Wells and Christensen Machine companies. 32

Meanwhile, Christensen Machine Company, a precursor to today’s Hughes Christensen, manufactured precision tools and gauges for Army and Navy ordnance and radar at its machine shop in Salt Lake City, Utah.

Women join Hughes Tools Co. employees in making ordnance for the war effort.

Year 1938

1939

1940

1941

1942

1943

1944

1945

1946

1947

The World

Energy Industry

Technology

Baker Hughes Milestones

• Broadcast of the “War of the Worlds” creates a panic. • Hitler occupies Austria. • Glenn Miller forms his jazz orchestra.

• Oil is discovered in Saudi Arabia and Kuwait. • Drilling depth passes 15,000 feet. • Catalysts used in refining to produce high-octane gasoline.

• World War II begins. • First commercial flight over the Atlantic

U.S. provides two-thirds of oil used by the Allied Forces.

• Lane-Wells Co. commercializes the Gamma Ray log developed by Well Survey, Inc. • Petrolite develops a water clarifier.

• Battle of Britain • Leon Trotsky assassinated, • 40-hour work week goes into effect in the U.S.

Russia develops multisection turbodrills.

Petrolite installs first chemical desalter in a Texas refinery.

Japan bombs Pearl Harbor, leading to the U.S. entry into World War II.

First Texas offshore well

• Lane-Wells Co. introduces the Neutron log. • Petrolite begins production of monocrystalline waxes in Kilgore, Texas.

Baker Oil Tools revenues reach $2 million.

Baker introduces the Model D packer, which enables multiple completions – technology driven by steel shortage during the war.

• Baker Oil Tools begins dual operations, helping the war effort. • Hughes Tool Company manufactures howitzers and aircraft landing gear struts. • Lane-Wells Co. makes electronic components for the military. • Oil Base Inc. formed, first oil-based mud company.

• Enrico Fermi’s team at the University of Chicago produces the first, self-sustaining nuclear chain reaction, leading to the development of the Atomic bomb. • T-shirt invented.

• Bill Lane, co-founder of Lane-Wells Co., retires. • Howard Hughes, Jr. flies around the world in record time – 3 days, 19 hours, 8 minutes and 10 seconds.

Warsaw ghetto uprising

Cities Service completes construction of the biggest, longest pipeline to help supply petroleum for the war effort.

John Eastman and John Zublin develop short-radius horizontal drilling tools.

Petrolite builds castor oil plant in Rhode Island to address wartime supply shortages; begins operations in Canada.

Allies invade Normandy on D-Day.

U.S. refineries supply 35 million gallons of gasoline to fuel the war effort.

Lane-Wells Co. incorporates armored cable in wireline units.

Christensen Diamond Products Co. founded in Salt Lake City, Utah.

• Atomic bombs dropped on Japan. • World War II ends. • United Nations founded.

• Levelland field discovered in West Texas. • Louisiana holds first offshore lease sale.

Petrolite patents first organic corrosion inhibitor, KONTOL.

• Winston Churchill makes “Iron Curtain” speech. • ENIAC computer is built. • Bikini introduced.

First marine seismic survey conducted in the Gulf of Mexico.

• Petrolite applies first corrosion inhibitor at a gasoline plant in Illinois. • Christensen introduces diamond bits in Rangely, Colorado oil field.

Lane-Wells Co. expands to Venezuela, completes 75,000th job.

• Dead Sea scrolls discovered. • India gains independence from colonial rule.

• Leduc field discovery fuels Canadian oil boom. • First offshore well drilled out of sight of land off Louisiana.

Lane-Wells introduces the collar locator.

• Baker Oil Tools expands throughout North America. • Christensen begins to import diamonds directly from London.

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1948-1957 34

Post-war Growth

A

fter World War II, the industry re-focused on technology and geographic expansion, especially in North America. Discoveries in Nebraska’s Gurley field opened the Denver-Julesburg Basin and shortly afterwards North Dakota’s Williston Basin came into play. In California, the first commercial gas well went into production near Oakland, and a well was drilled over water from an island structure off Seal Beach. In Louisiana, the first offshore well was drilled out of sight of land in 1947. By the mid1950s there were 2700 active rigs in the U.S., drilling more than 57,000 wells through 233 million feet of bedrock. In Canada, the Leduc discovery set off an oil boom in Alberta, and soon after, gas was discovered in Nova Scotia. Oilfield service companies debated which market to chase in a time of opportunity. Even with similar discoveries on other continents, including the world’s largest oil field in Ghawar, Saudi Arabia and oil finds in Nigeria and Algeria, most chose to stay focused on North America where it was easier to operate. 35

1948-1957 Baker Builds New Plant, Expands In the U.S., Baker Oil Tools matched the industry’s growth with an aggressive expansion of its operations. During 1948-59 a total of 50 new branches were established in sixteen states and a Baker export office was opened and staffed in New York. Baker Oil Tools also outgrew its Huntington Park facility and in 1952 the Los Angeles headquarters moved into a new plant and building on a 13-acre site on Slauson Avenue. The facility was built at a cost of $1,250,000, and Reuben C. Baker was proud to note that none of the money for the expansion was borrowed. In 1950, Baker introduced the Model E, the first retrievable casing packer.

Baker Oil Tools Slauson Avenue plant was built in 1952.

Hughes Builds R&E Facility, Opens First International Plant Returning its attention from war production back to the oil patch, Hughes Tool Company expanded its operations to the newly discovered oil fields throughout North America and made major advancements in drill bit and tool joint technologies. During 194850, Hughes applied jet drilling research to develop integrated jets for rock bits, yielding improved removal of cuttings and higher rates of penetration. In 1951, the company introduced the first Tungsten Carbide Insert (TCI) bits, which increased penetration rates and bit life in the hard and abrasive West Texas chert. In 1954, Hughes Tool Company established its first manufacturing plant outside the United States, in Belfast, Northern Ireland.

A full-size drilling rig in the Hughes laboratory simulated field conditions.

4500

U.S. Rotary Rig Count

4000

3500

3000

2500

2000

1500

1000

500

19 49 19 51 19 53 19 55 19 57 19 59 19 61 19 63 19 65 19 67 19 69 19 71 19 73 19 75 19 77 19 79 19 81 19 83 19 85 19 87 19 89 19 91 19 93 19 95 19 97 19 99 20 01 20 03 20 05

0

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The Baker Hughes rotary rig count began at Hughes Tool Company in the 1930s as an in-house production forecasting and marketing tool. Noting that the information would be beneficial to the industry, Hughes began providing monthly counts of U.S. drilling activity to the public in 1944. Since 1949, the U.S. rig count has been published on a weekly basis. Coverage was expanded to include Canadian rig activity in 1964, and in 1975 a monthly International Rig Count was added. Today, Baker Hughes publishes three distinct rig counts: U.S. and Canadian Rotary Rigs (weekly); International Rotary Rigs (monthly), and U.S. and Canadian workover rigs (compiled by Baker Oil Tools, monthly since 1992). The highest recorded U.S. rig count was 4530 rigs, during the last week of 1981. The lowest U.S. rig count was 488, in April 1999. Extremes of Canadian rig counts are a high of 715 rigs in February 2006, and a low of just 32 in April 1992. The highest international rig count on record was 1497 in May 1987, and the low point was 560 rigs in January 2000. The highest North America workover count was 2407 in June 2006, and the lowest was 925 in May 1999.

Lane-Wells Advances Logging Technology The Baker Atlas predecessor company LaneWells also grew steadily after the war with growth in all parts of the U.S. The boom areas of East Texas, the Permian Basin and New Mexico stretched resources, and by 1950 there were a total of 249 Lane-Wells wireline units serving North America and Venezuela. LaneWells established its Canadian offices in the early 1950s to end the long drives from the Wyoming service base, and to establish a presence as a major contributor to future Canadian oil and gas development.

Christensen Diamond Products employees in front of the headquarters building in Salt Lake City, 1954. During this decade, Christensen Diamond Products expanded its manufacturing capacity in Salt Lake City, opened manufacturing plants in Hobbs, New Mexico, and expanded internationally with a plant near Paris, France.

Lane-Wells also improved its technology with the introduction of the first shaped-perforating charge in 1948 and later the development of the density log. Because of strong growth prospects, Dresser Industries acquired Lane-Wells in 1954. Just six months after the acquisition, the industry took a downturn. To survive, Lane-Wells focused on improved services and instrumentation to provide a complete range of logging services. Success depended upon the development of resistivity systems and ultimately the induction log. A merger with the Elgen Company, which had built a logging business in North Texas, facilitated commercialization. Field testing took place at a deserted intersection on Westheimer Road in Houston, which years later would become the company’s headquarters.

Eastman Expands Services In the 1950s, Eastman Oilwell Survey Company expanded its product line, which it marketed through principal offices in Houston, Denver, Long Beach and Calgary. Eastman improved magnetic survey methods with the introduction of nonmagnetic drill collars, new single-shot and multiple-shot instruments, and better survey calculation algorithms. Improved whipstocks and orienting devices enhanced directional drilling operations and EASTCO reamers and stabilizers were designed for use in directional drilling assemblies. Eastman also introduced the Star Drilling Recorder as a service to provide permanent records of land rig operations and the EASTCO Drift Indicator, which measured inclination in vertical wells. Eastman directional drillers, surveyors and technicians held a leading share of the North American directional service business.

Introduced in 1948, Lane-Wells shaped-perforating charges were manufactured under “bakery-like” clean conditions (left). A Permeability Lab (right) was built in Houston in the early 1950s.

An Eastman directional driller lowers a whipstock into a well.

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1948-1957 Milwhite Evolves After a hiatus that began during World War II, Milwhite restarted its drilling mud business in 1952. To meet demand during the 1950s, Milwhite mining operations and grinding plants were greatly expanded to keep up with increased demand. The company bought a Continental Oil clay plant in Riverside, Texas and also began to grind barites imported from mines in Nova Scotia. Milwhite products were sold on consignment in Canada and West Texas to companies that maintained their own warehouses and staff of field engineers. In coastal Texas and eastern Louisiana, products were serviced by Milwhite field engineers, but warehouses were generally operated by appointed dealers. In 1956, St. Louis-based Mississippi River Fuel Company, purchased Milwhite.

Milwhite mud technician at work in Houston

Start-up Companies Add Depth An important oilfield chemical market first surfaced in 1951 when four chemists and engineers left Chevron Research Corp to form Magna Corporation. Magna’s founders had obtained the marketing rights to a patented oilfield corrosion inhibitor developed by Chevron. Magna’s early operations were in Brea, California with trucks delivering inhibitors to the field and injecting directly into the annulus of corrosive wells. As business grew, Magna added new products and services including scale inhibitors, demulsifiers, biocides and surfactants. Magna eventually established a full-line manufacturing facility in Odessa, Texas and operations quickly spread through Texas, the Mid-Continent and Rocky Mountain regions in parallel with industry expansion. Baker International acquired Magna in 1976. The company eventually evolved into Baker Performance Chemicals and finally Baker Petrolite. In 1952, a group of Stanford University engineering and geology graduates formed Exploration Logging Company (EXLOG) to provide geologic mud logging services from wheeled logging units using technical innovations in hot-wire gas detection. EXLOG would become a world leader in surface logging, rig-site instrumentation, and data acquisition services.

Centrilift Begins Lane-Wells logging truck and interior monitoring equipment

38

As the industry expanded in the early 1950s and then contracted by mid-decade, oilfield operators faced difficulty raising capital for new wells. They searched for ways to increase their return on investment in existing wells, opening the door for fledgling companies to provide the technology that would increase recovery.

In 1949 Oil Base Inc. (OBI) introduced BLACK-MAGIC® SFT (Sacked Fishing Tool), a drilling fluid additive designed to free stuck pipe. The product was an immediate success and is still in use today.

The original Christensen manufacturing plant in Celle, Germany, 1957 In the 1900s in Russia, Aramis Arutunoff invented the first electrical submersible pump (ESP). The technology lay somewhat dormant for years until the 1940s when the advent of water flooding as a secondary recovery measure gave the ESP industry an additional market. Building on the need to enhance production, a group of engineers set up shop in Vernon, California in 1957. Here they developed the Centrilift oilfield electrical submersible pump. More than 20 prototypes would be built before the first installation took place in 1959 at Signal Hill in Long Beach, California, for Shell Oil Company. Centrilift would become a product line of Byron Jackson Pump, a division of the Borg-Warner Corporation.

Technology Center Opens in Germany In 1957 Christensen Diamond Products opened a manufacturing plant in Celle, West Germany to serve international markets. A friendship between co-founder Frank Christensen, Bob Lawe and local national Addi Baumann led to the business undertaking. Initially, the facility built diamond core heads and drilling bits. Later, it began producing stabilizers, drilling jars and other equipment, utilizing the talents of German engineers in all disciplines. Today, the Celle Technology Center is the leading research and engineering facility for Baker Hughes in the Eastern Hemisphere.

New Products Improve Efficiency

Also, in 1949, Whipstock, Inc. was founded in Louisiana after Eastman directional drilling patents expired. Whipstock Inc. pursued international markets and would establish operations in Nigeria and the Middle East. The company would later merge with Eastman Oilwell Survey Company to become Eastman Whipstock, and eventually part of Baker Hughes INTEQ. In 1952, Christensen introduced the first non-coring surfaceset diamond bit for oilfield applications after developing a proprietary erosion-resistant matrix and powder metallurgy process for mounting diamonds in the bit crowns. The company was also the first to manufacture diamond washover shoes, and diamond reamers and under-reamers. For coring operations, Christensen developed the 250P and Rubber Sleeve core barrel systems, which soon became industry standards. In 1954, Baker Oil Tools licensed Fagro, a German manufacturing concern, to manufacture Baker products in Germany and shortly afterwards Baker Transworld added divisions in Canada and Venezuela. Baker also developed an impressive list of new tools including Differential and Flexiflow Fill-Up Equipment, Snap-Set Dual Packers, the Model “A” Tension Packer, the Model “L” Triple Packer, Tubing Anchors and the Three-Blade Wall Scraper. McMurry Oil Tools also started business in Houston in 1954 with a line of gas-lift equipment. In the late 1970s, the company would become part of Hughes Tool to supplement its growing offerings of oil and gas production equipment.

Baker’s Model “A” Tension Packer was designed to support water flooding projects.

During this decade Baker Hughes predecessor companies expanded their product lines through internal advances in technology, manufacturing, and materials and through acquisitions and new business relationships. 39

1948-1957 Neutron Log Pioneer Arthur Youmans was an Iowa farm boy who managed to educate himself during the Great Depression and had a penchant for physics. He began his oilfield career in 1948 as a Staff Chemist at Well Surveys, Inc., a small oilfield services company in Tulsa, Oklahoma. His key project soon became the development of a pulsed-neutron logging tool capable of locating and assessing oil through cased boreholes. Over the next decade, his persistent work and the help of a team of co-workers led to the Neutron Lifetime Log® in 1963 – the first commercially available pulsedneutron tool. In the years that followed, the Neutron Lifetime Log discovered millions of barrels of oil that otherwise might never have been found. In 1960, Well Surveys merged with Lane-Wells and Youmans quickly advanced to senior research positions. He was acknowledged as an international expert on well logging and by the end of his career had received over 75 U.S. patents.

Arthur Youmans (right) with Richard Conner (left) and Erik Hopkinson during the testing of the Neutron Lifetime log

A Founder Dies In early 1957, during one of the most successful periods in the company’s history, Reuben C. Baker retired as President of Baker Oil Tools. A few weeks later, Mr. Baker died after a brief illness. He was 85 years old. Mr. Baker left a legacy of creative genius, integrity, and dedication to providing quality products and services to the oil and gas industry. Although he only had three years of formal education, Mr. Baker’s inventions earned him 150 U.S. patents. He was succeeded as Baker Oil Tools president by his long-time associate Ted Sutter.

“I think I have lived in the most wonderful period of all time. Science and invention found their stride during my lifetime. I can remember the first gasoline engine, the first automobile, the first electric light, telephone, wireless telegraph, submarine, airplane, radio, and now atomic development.” – R.C. Baker

40

Year 1948

1949

1950

1951

1952

1953

1954

1955

1956

1957

The World

Energy Industry

Technology

Baker Hughes Milestones

• Berlin airlift delivers food supplies. • Gandhi assassinated. • State of Israel founded.

U.S. briefly becomes a net oil importer.

• Hughes introduces jet bits. • Lane-Wells introduces shapedperforating charge.

Lane-Wells completes 100,000th job on La Merced #17 well, same well perforated on job #1.

• China becomes Communist. • NATO established.

Denver-Julesburg Basin discovered.

• Petrolite applies first corrosion inhibitor at Illinois refinery. • Petrolite patents ethylene oxide demulsifier, chemistry that is still in use. • Oil Base, Inc. introduces BLACK-MAGIC® spotting fluid.

• Lane-Wells co-founder Bill Lane dies. • Whipstock Inc. founded in Louisiana as Eastman patent expires. • Baker Transworld formed for Venezuela operations.

• Modern credit card issued. • Korean War begins.

Spraberry Trend discovered in West Texas.

Libya becomes a country established by the UN.

Discovery of Williston Basin in North Dakota.

Hughes introduces tungsten carbide insert (TCI) bits.

Magna Corporation founded, based on first oilfield corrosion inhibitor.

• Polio vaccine created. • Princess Elizabeth becomes Queen at the age of 25.

Six drain holes drilled from one well.

Petrolite applies first rust inhibitor to a Pennsylvania pipeline.

• Exploration Logging (EXLOG) founded by Stanford University graduates. • Milwhite Mud Company organized. • New Baker Oil Tools headquarters established on Slauson Street in Los Angeles.

• DNA discovered. • Hillary and Norgay climb Mt. Everest.

Multilateral well drilled in Russia.

Christensen introduces industry standard 250P core barrel system.

• U.S. has 58.5 million vehicles. • First atomic submarine launched. • Roger Bannister breaks the four-minute mile.

• First commercial acoustic seismic log • First offshore jack-up drilling rig

Lane-Wells introduces density log.

• Lane-Wells is acquired by Dresser Industries. • E.D. McMurry founds McMurry Oil Tools to provide gas lift equipment. • Hughes Tool Co. opens manufacturing plant in Belfast, Northern Ireland.

• Warsaw pact signed. • Disneyland opens.

• Soviets begin exporting oil. • First oil discoveries in Gabon, Cameroon and Angola.

Petrolite applies dispersant fouling inhibitor at an Illinois refinery.

Petrolite opens manufacturing plant in Kirkby, England.

• Arab-Isreali crisis closes Suez canal. • USSR suppresses Hungarian uprising.

• Oil found in Nigeria and Algeria. • 58,000 wells drilled in the U.S. • First drillship and jackup rig go into service.

Elgen Company develops the induction logging tool.

Lane-Wells establishes Westheimer location, acquires Elgen Company.

• European Community established. • Soviet satellite Sputnik launches Space Age.

Subsea BOP stack and control system developed.

Centrilift pump developed in Vernon, California.

• R.C. Baker retires. Ted Sutter becomes President and G.M. of Baker Oil Tools. Mr. Baker dies at 85. • Centrilift becomes a product line of Byron Jackson pumps. • Christensen opens a diamond bit plant in Celle, Germany.

41

1958-1967 42

International and Offshore Markets

A

fter a brief recession during 1956-58, the oil and gas service sector resumed sustained growth and expansion through the 1960s. In the continental United States, significant discoveries were made in the Denver, Williston and Permian basins. Offshore, oil fields were discovered on the continental shelf of the Gulf of Mexico, bringing the oil patch to south Louisiana. Internationally, giant fields were discovered in the Middle East, leading to the formation of OPEC in 1960. The energy industry in Russia expanded with the discovery of major gas fields, and the giant Daqing field was discovered in China. But these two Communist nations remained closed to Western operating and service companies. The 1960s boom cycle turned Baker Oil Tools, Hughes Tool Company, Lane-Wells and Eastman into industry leaders and the period also fostered technological innovation that led to the formation of new oilfield service companies. 43

1958-1967 Sutter, Clark Lead Baker Growth

B

aker Oil Tools experienced one of its greatest periods of growth in this decade, first under the direction of Ted Sutter, who became president in 1956, and then E.H. “Hubie” Clark, who was elected president in 1961. This period also saw a gradual shift of research and manufacturing operations from Los Angeles to Houston. The company installed its first computer, a Univac, in 1962 to improve inventory control, pricing and accounting.

Ted Sutter (center) and Hubie Clark (far right) shake hands with R.F. Ingold (far left) and C.J. Coberly after the acquisition of Kobe pump company.

To meet growing international demand for oilfield services, Baker Oil Tools opened a manufacturing plant in Edmonton, Canada, and established sales and distribution centers in West Germany, South America and Nigeria. A complete reservoir fluid analysis lab was established in Port Harcourt, Nigeria. Baker Oil Tools (Nederland) N.V. was formed to service North Sea operations off the Dutch coast, while Baker Oil Tools (U.K.) Ltd. was established at Great Yarmouth to service the British sector of the North Sea. Baker introduced a number of completion products, including dual and triple packers, tubing anchors, and cement retainers. The first retrievable packer, Model E, was introduced during this decade and improved upon through the Model G and R retrievable packers. In 1962, Baker introduced the first external casing packer.

Baker Oil Tools introduced a number of packer innovations during the 1960s. Baker Oil Tools’ Houston test lab facility was completed in 1961. 44

E.H. “Hubie” Clark held 30 oil tool patents and led Baker Oil Tools through the growth and expansion period of the 1960s and 1970s.

Innovation and Expansion at Hughes Hughes Tool Company remained a private enterprise through the decade, owned by Howard Hughes, Jr. While Mr. Hughes was engaged in his Hollywood and aviation enterprises, managers in Houston, such as Fred Ayers and Maynard Montrose, kept the tool company growing through technical innovation and international expansion. In 1958, the Engineering and Research Laboratory was enlarged to accommodate six laboratory sections that housed specialized instruments such as a direct reading spectrometer and X-ray diffractometer. In 1959, Hughes introduced self-lubricating, sealed-bearing rock bits. After collecting data from thousands of bit runs, Hughes introduced the first comprehensive guides to efficient drilling practices in 1960. The year 1964 saw the introduction of the X-Line rock bits, combining new cutting structure designs and hydraulic jets. To support drilling activity in the North Sea and the Middle East, the company expanded manufacturing operations in Belfast, Northern Ireland. A new bit plant was set up in Buenos Aires, Argentina. Through licensees, bits and tool joints were manufactured in Canada, Mexico, Brazil and Germany. Product sales were made in oil fields throughout the Western and Eastern hemispheres with the help of manufacturer’s representatives.

Hughes Tool Company introduced the X-Line rock bits in 1964.

Hughes Tool Company’s Research & Engineering laboratory was the most extensive in the industry, 1958.

45

1958-1967 Lane-Wells’ Survival and Successes

As Lane-Wells technology became increasingly complex, a Quality Control Department was established to maintain high manufacturing standards, 1959.

Lane-Wells celebrated its 25-year anniversary in 1957, a period of severe belt-tightening and consolidation. In 1958, the company vacated most of its Los Angeles offices and moved the core group of employees to Houston. Convinced that the best way to turn around the company was through improved logging services, Lane-Wells merged with Elgen, an openhole logging company based in Wichita Falls, Texas. Manufacturing capabilities were enhanced through S.I.E., a Dresser company, which supplied geophysical and analog instruments. As a result of this reorganization, the company launched new formation evaluation services – Electrolog® electric logging, Acoustilog® and Neutron Lifetime Log. With Lane-Wells Research at work in the new Westheimer location, the company introduced the Induction log and conducted development research for the Minilog and Laterolog resistivity instruments. Activity picked up first in the international markets with South America being the busiest sector. The company negotiated a contract with YPF, the Argentinian oil company in 1959 and serviced more than 4,000 wells over the next four years. Operations in Venezuela also contributed to the company’s continued stability. Lane-Wells entered the Canadian acidizing and fracturing market by purchasing a small company known as “Eskimo.” Within a few years, the company became a separate entity within the Dresser Goup and was renamed “Titan.”

Eastman Extends Services Eastman Oilwell Survey Company continued to expand its businesses through the 1960s with headquarters in Denver, Colorado. The company had field offices located in Houston, Lafayette, Odessa and both Edmonton and Calgary in Canada to handle controlled directional drilling and well survey jobs through local field engineers. An Export Sales department was established in the Denver office to support international orders.

The Lane-Wells Company’s Houston headquarters on Westheimer Road. 46

Christensen Goes International Christensen Diamond Products businesses grew in international markets with manufacturing plants operating in Canada, France and Celle, Germany. Frank Christensen set up a Nippon Christensen plant in Japan. In South America, Christensen bits were used to drill wells at Lake Maracaibo in Venezuela and Brazil’s Amazon jungle. The company invented a rubber sleeve core barrel to allow recovery of unconsolidated cores. Patents were obtained for drilling and coring bits with spiral waterways.

Fluids and Chemicals Businesses During the 1960s, Milwhite took advantage of drilling activity in the Permian and D-J Basins to expand the distribution network in the West Texas and Rocky Mountain region. Newly discovered offshore fields in the Gulf of Mexico led to the establishment of supply depots and blend plants in Louisiana. Milwhite’s business growth potential attracted the attention outside the oil industry, leading to its 1962 acquisition by the Olin Group, a chemicals and metals company based in Missouri. In 1964, Milchem was formed to supply drilling fluids and oilfield chemicals. The new company launched THERMEX, an oil-based drilling mud system in 1965.

In addition to its directional services, Eastman supplied the Star Recorder, a mechanical logging unit that could record drilling rig performance parameters, 1958.

Production and refining chemicals business saw increased activity by established companies such as Petrolite and the formation of new enterprises. In 1963, Milwhite acquired Aquaness, a provider of production and refining chemicals. In 1965, Amoco founded Wellchem, an oilfield production chemicals business.

Christensen engineers run the rubber sleeve core barrel in Venezuela, 1958.

47

1958-1967 Centrilift: Tulsa to Tripoli In 1966, the Centrilift ESP business moved to a new plant in Tulsa, which was jointly occupied with Byron Jackson Pump standard products division. Centrilift’s sales and service activities were expanded as units were added in Canada and other parts of the United States. To better serve these customers, a network of service centers was developed, which located service personnel and equipment close to the installations through North America. Centrilift’s first foreign installations were made in Germany, Austria and Brunei in the early 1960s. Work was also going on at this time in South America. The first major export was to the Oasis Oil Company in Tripoli, Libya in 1965, a contract for 43 units.

Milwhite used a seaplane to support drilling operations along Louisiana’s inland waters during the 1960s.

In 1966, Centrilift moved its ESP manufacturing operations to the Byron Jackson pump facility in Tulsa.

48

Year 1958

1959

1960

1961

1962

1963

1964

1965

1966

1967

The World

Energy Industry

Technology

Baker Hughes Milestones

• NASA founded. • Hula hoop becomes popular.

U.S. drillers pass 25,000-ft barrier.

• Baker Oil Tools introduces new packers, anchors, scrapers and workover tools. • Christensen introduces rubber sleeve core barrel for the Mohole project.

Lane-Wells Co. moves headquarters to Houston.

Cuban Revolution brings Castro to power.

China discovers supergiant Daqing field.

• Centrilift installs first ESP system in California. • Milwhite introduces UNI-CAL chrome lignosulfate drilling fluid. • Hughes introduces selflubricating sealed-bearing bit.

• Centrilift moves operations to Tulsa. • Petrolite opens blend plant in Estevan, Saskachewan and Frankfurt, Germany.

• U2 spy plane shot down over Russia. • John F. Kennedy wins U.S. presidential election.

• Oil discovered in Qatar, UAE. • OPEC formed.

• Petrolite patents anti-oxidant fuel stability additive for #2 fuel and diesel.

• Baker Oil Tools revenue tops $25 million. • BOT Research Department moves to Houston.

Ted Sutter is named Chairman and E.H. Clark President of Baker Oil Tools.

• Berlin Wall built. • Soviets launch first man in space. • U.S. Peace Corps founded. • Cuban missile crisis increases tensions between U.S. and Soviet Union. • Algeria gains independence after France withdraws.

Major oilfield discoveries in the Gulf of Mexico.

Baker introduces external casing packer.

• Olin Group purchases Milwhite. • Baker Oil Tools acquires Pressure Services Incorporated, a manufacturer of subsurface flow control equipment. • Petrolite France commences operations.

• John Kennedy assassinated. • Martin Luther King makes his “I have a dream” speech.

Major discoveries in West Texas and Saudi Arabia.

• Lane-Wells introduces Neutron Lifetime Log. • Petrolite applies first inhibitor dispersant in a naptha HDS heat exchanger.

• Milwhite purchases Aquaness, provider of production and refining chemicals. • Baker Oil Tools acquires Kobe Inc., a major pump supplier. • Lane-Wells founder Walt Wells dies.

• Beatles become popular in the U.S. • Civil rights act passes in the U.S.

Three giant fields discovered in Iran.

Hughes Tool Company introduces X-Line drill bits with improved cutting structure, fully sealed bearings and jets.

• Milchem formed to market drilling fluids and oilfield chemicals. • BOT International expands with locations in Canada, Germany, Bolivia, Libya, Iran and Nigeria.

U.S. Marines land in DaNang, Vietnam, escalating the war.

• Discoveries in Alaska’s McArthur River, West Texas and Oklahoma. • Production begins in Egypt’s Gulf of Suez.

Milchem introduces THERMEX oil-based mud.

• BOT’s Houston facilities match size of Los Angeles plant. • BOT opens facilities in U.K. and Holland. • Amoco founds Wellchem Inc., an oilfield production chemicals business.

Mao Zedong launches the “Cultural Revolution.”

• Major oil discoveries in Libya and gas discoveries in Russia • Civil War in Nigeria disrupts oil operations.

Russia develops multilobe positive displacement motor (PDM).

• Centrilift moves to new facility in Tulsa. • Baker Oil Tools expands Latin American operations to Peru and Brazil.

• First heart transplant • Six day war in the Middle East

• Arab-Israeli War causes oil crisis. • First oil production in Oman

First 3D seismic survey shot over Exxon’s Friendswood field.

49

1968-1977 50

Broadening Product Lines, Diversification

I

n the late 1960s and 1970s, new markets, new products, new applications, and corporate mergers drove industry growth and diversification. The 1973 Arab oil embargo ignited exploration activity as oil discoveries on Alaska’s North Slope and the North Sea basin spurred development of large new reserves. 51

1968-1977 Hughes Goes Public, Grows through Acquisitions

Hughes Tool Company’s 84-acre Polk Street facility near downtown Houston

In 1972, a corporation was formed to acquire the oil tool assets of Howard R. Hughes, Jr.’s Summa Corporation. The new, publicly held Hughes Tool Company achieved extraordinary growth through the decade as revenues grew from $150 million in 1973 to $450 million in 1977. To support international sales of its principal products, drill bits and tool joints, Hughes built manufacturing plants in Canada, Mexico, Venezuela and Brazil. The company also pursued an aggressive strategy of mergers and acquisitions under the direction of Chairman Raymond Holliday and President James Lesch. Two of the major acquisitions during this decade were Byron Jackson Inc. (BJ) in 1974 and Regan Offshore International in 1976. The BJ acquisition diversified Hughes’ operations into pressure pumping for cementing and well stimulation. Through Regan Offshore, Hughes extended its offshore services to risers and diverters for subsea production. Drilling expertise also enabled Hughes to diversify outside the oil industry. The company sold drill bits and boring equipment for mining, water-well, construction and demolition industries.

Integration of Wireline Services In 1968, Dresser Industries brought together Lane-Wells and the Pan Geo Atlas Corporation (PGAC) to form Dresser Atlas. PGAC’s expertise in openhole logging and its international operations made it an ideal merger partner to form an integrated wireline services company.

During the 1970s, Hughes manufactured over 400 types of drill bits (left) and was the largest manufacturer of tool joints.

52

A BJ-Hughes cementing operation (left). A Regan subsea production system under test (right) Since its inception, Lane-Wells had generated most of its income from perforating services, but log interpretation had narrowed down producing zones, resulting in fewer perforations and less revenue. Greatly expanded wireline logging capabilities helped the combined company continue to grow. The company’s increased service capabilities in both logging and perforating and the advent of modern computer technology allowed research engineers to make major advancements in instrumentation during the ‘70s. Microprocessors and minicomputers improved the design and reliability of downhole

tools and gave field engineers improved abilities to analyze data. Innovations included the Compensated Neutron, Spectralog, HC Acoustilog instruments and continued improvements in the carbon/oxygen log. There were also vast improvements in cased hole offerings with the development of VertilogSM services, which Dresser Atlas purchased from AMF Tuboscope. The perforating side of the business also was buoyed with increased technical expertise. In 1975, Dresser Atlas constructed the Pine Island facility for the manufacturing and testing of shaped-perforating charges.

Dresser Atlas facility in far west Houston on Westheimer Road was a center for the company’s research, engineering and manufacturing operations.

53

1968-1977 Christensen Develops PDC Bit

Christensen applied innovative synthetic diamond manufacturing technology to introduce the first PDC bit in 1976.

Since its founding, Christensen Diamond Products had expanded its designs and applications for diamond drilling and coring bits using natural diamonds as the principal cutting elements. These “industrial” diamonds were primarily sourced from South Africa and were sorted, sized and graded for mounting in diamond bits that would drill certain formation types in specific applications. In the early 1970s, diamond technology reached a major milestone when General Electric developed a process to make synthetic diamonds by alternating carbon graphite and cobalt under high pressures and temperatures. Recognizing the potential opportunity to adapt this technology to oilfield drilling, in 1972 Christensen built a Diamond Technology Center in Salt Lake staffed with scientists and outfitted with state-of-the-art equipment to pursue research and development. Ultimately the investment led to the development of a polycrystalline diamond compact (PDC) cutting elements. Christensen quickly adapted the technology to oilfield drilling in the form of a “fixed cutter” bit with the introduction of the industry’s first PDC bit in 1976. With cutters made of synthetic diamonds, the PDC bit had no moving parts and cut rock with a shearing action that increased rates of penetration compared to roller cone and natural diamond bits drilling in the same formation. PDCs subsequently opened a whole new application range for diamond bits, principally in softer formations. Materials, design and manufacturing processes continue to be improved and perfected and today, PDC bits account for more than 60% of the footage drilled worldwide. In 1976, Christensen developed the Navi-Drill® downhole motor at its facility in Celle, West Germany. In January 1977, the first run of a Navi-Drill Motor – a 3¾” Mach 3 operated out of Celle – was invoiced to customer, Preussag AG in Germany. Product offerings were continuously expanded to meet market demands, and the Navi-Drill motor line would become the industry leader in reliability, performance and worldwide use.

Dresser Atlas built a flow loop at its Westheimer center to test production logging instruments under simulated downhole conditions.

54

Teleco Conceives Real-time Drilling Measurements To verify the direction of drilling, historically the drilling operation was stopped to take directional surveys that verified positioning. In 1972, Raymond Engineering of Connecticut and French oil company Elf Aquitaine formed a joint venture to develop new technology that would measure directional drilling information in a downhole

assembly and transmit it to the surface in near real time without using a wireline or photographic methods. Soon, Ralph Spinnler and a group of aerospace engineers began the development of the first directional measurement-while-drilling (MWD) system far from the oil field, in Connecticut. Their efforts resulted in a tool that could acquire directional readings while drilling, eliminating downtime and saving operators substantial money. The technique was based on the use of advanced downhole sensor and telemetry technology, whereby data would be transmitted from the bottom of a borehole to the surface via mud pulses. In 1978, Teleco conducted its first commercial job in the U.K. sector of the North Sea, saving substantial time by eliminating single-shot surveys and wireline steering tool services. The technology was soon deployed throughout the North Sea and in Lafayette to serve the Gulf of Mexico.

Baker Achieves Rapid Growth through Diversification With continued solid growth as a base, Baker Oil Tools aggressively acquired companies to complement existing businesses, enter new markets and extend product lines. Baker expanded operations geographically and explored new industry segments. A small corporate group headed by E.H. “Hubie” Clark was formed to provide overall guidance and strategic planning as the company diversified.

Teleco Oilfield Services developed the first MWD system and conducted the first commercial job in the North Sea in 1978.

Technical Oil Tool Corporation (TOTCO) was acquired in 1968 to add drilling instrumentation. Rotary Oil Tool Co. was purchased to add drilling equipment manufacturing. Associated Engineering and Equipment Co. provided production service outlets for Baker flow control products. In 1969, Baker’s first foray outside the oil and gas industry came with the purchase of The Galigher Company, a mining equipment manufacturer. Lynes, Inc., a supplier of liner hangers and completion tools, was purchased in 1970. In 1971, Baker’s production, remedial and stimulation businesses also were expanded as the company sought new avenues in oilfield services. In the same year, Milchem, now a major supplier of drilling fluids, oilfield chemicals and related services, was acquired. Mud Separators, Inc. was added to provide Milchem with a solids control product line. Other Baker acquisitions in this year included Dixieco, a Louisiana-based corporation specializing in hydraulic workover systems, and Hallikainen Instruments, Inc., a process instruments manufacturer.

Baker Oil Tools acquired the Milchem drilling fluids and oilfield chemical company in 1971.

Baker’s product base further diversified into specialty chemicals used in petroleum production and refining with the acquisition 55

1968-1977 of Magna Corporation in 1977. Magna would become part of Baker Performance Chemicals in 1985. Baker pursued product line expansions in retrievable packers, safety valves and well-washing equipment. Baker gravel packing services began to steadily increase in importance. In 1976, the company established a separate division called Baker Sand Control to specialize in this sand control technology and service. This pattern of diversification continued into mid decade, when Baker acquired Harold Brown Co., a gas lift systems and surface valve actuator manufacturer, as well as EXLOG, a leader in mud logging and geological engineering services. In 1973 Tri-State Oil Tool Industries brought additional drilling and fishing tools to Baker’s service package. Many market niches were pursued including the formation of Baker Offshore, which provided well testing equipment packages for offshore drilling rigs. To support dramatic growth Baker added or expanded manufacturing facilities in all or its divisions to increase capacity and install new processes. The old Navigation site in Houston was demolished and Houston personnel moved into new facilities at the same location. In Aberdeen, construction of a new manufacturing plant was begun. Baker’s most notable acquisition during this era was Reed Tool Company in 1975, a major supplier of drill bits, tool joints and other petroleum equipment as well as products in the mining industry. With this acquisition, the company joined the Fortune 500 list of leading American corporations for the first time. In 1976, Baker Oil Tools changed its name to Baker International Corporation to reflect its new position as a major player in oilfield services. To better align operations five new company Groups were formed to include Reed Tool Company, Drilling Services, Baker Oil Tools, Production Services and Mining. They would split further into autonomous divisions to redirect engineering, production and management efforts in response to the increased need for specialized products and services. With the Reed Tool acquisition, Baker International pursued three strategies to help customers discover, develop, and improve the recovery of oil and gas reserves.

Notable Baker acquisitions during the 1970s included the Milchem fluids company, Reed Tool Company, which manufactured drill bits and tool joints, and Exlog, the mud logging company. 56

Other Developments Other companies that would become part of Baker Hughes also were positioning for industry growth during this decade. In the late ‘60s, Centrilift expanded its network of service centers with

growing international sales in Europe and the Middle East. In 1972, the company received a contract for 110 units from the U.S.S.R. Subsequent contracts throughout the ‘70s allowed the pump manufacturer to gain a strong foothold in the Russian market. In 1974, the first ESP sales also were made to the People’s Republic of China. Magna purchased the Aquaness Company of Houston in 1972 along with a large, versatile manufacturing plant. Aquaness sold oilfield specialty chemicals, but also offered chemicals and products that could be used in oilwell stimulation and drilling fluid formulations. With broader product lines, the new combination grew steadily during the decade and revenues expanded ten-fold. New, larger manufacturing facilities in England and Canada helped meet growing demand. In 1977, predecessor company Newpark Drilling Fluids introduced NEW-DRILL fluid, the first polymer mud system. The product was the first step in developing environmentally acceptable water-based fluids that would also deliver drilling efficiency.

Baker Oil Tools was renamed Baker International in 1976.

Petrolite was also busy moving into new markets and products during this decade. To service the Asian market, a Toyo-Petrolite joint

Diversification during the 1970s led Baker Oil Tools to form seven companies to support all of its oilfield services. 57

1968-1977 venture was formed in Japan during 1975. A blend plant opened in Saudi Arabia in 1978 and in Canada, Norchem Services was formed to distribute oilfield chemicals developed at Petrolite’s Tulsa Research Center. In the U.S., Petrolite became the sole distributor of Wemco air flotation water clarifier vessels. The first unit was installed for Gulf Oil Co. in California. Welchem, a future Petrolite acquisition, patented the A-Sol product line for downhole stimulations and remediation treatments. A new manufacturing plant in Bayport, Texas came on stream to enhance distribution. In 1972 Petrolane, a California conglomerate, purchased Whipstock, Inc. Two years later, Petrolane also acquired Eastman Oilwell Survey Company to create Eastman Whipstock Incorporated, the world’s largest directional drilling company. Eastman Whipstock performed directional drilling and surveying services on some of the first North Sea platforms, including the Forties field in the U.K. sector, and all four of the Ekofisk platforms in Norway.

Howard Hughes, Jr. Dies Eastman Whipstock was active in oil fields throughout the world, including Nigeria and the Middle East.

Howard Hughes, Jr. sold his interest in the Hughes Tool Company in 1972, but his diversified business interests, including the Hughes Aircraft Company, Hughes Airwest Airline and Las Vegas casinos, continued to thrive. Hughes died at the age of 70 on April 5, 1976 of kidney failure while en route from Acapulco to Houston. He left behind an estate worth $2 billion. One of his charitable legacies is the Howard Hughes Medical Institute, a leader in molecular biology and medical science education.

Howard Hughes, Jr.

58

Energy Industry

Technology

Baker Hughes Milestones

Year

The World

1968

• Tet offensive takes place in Vietnam. • Martin Luther King assassinated. • Robert F. Kennedy assassinated. • Richard M. Nixon elected U.S. President

• Prudhoe Bay and Barracouta fields discovered in Alaska. • Six more gas fields discovered in Western Siberia. • U.S. well completions down to 30,939.

Baker Oil Tools introduces innovative packer systems.

• Baker Oil Tools acquires Technical Oil Tool Corporation (TOTCO), provider of oilfield instrumentation. • Dresser acquires Pan Geo Atlas Corp. and combines it with LaneWells Co. to form Dresser Atlas.

1969

• Neil Armstrong becomes the first man to walk on the moon. • Arapnet, the precursor of the internet, is created.

• Oil discovered in the Norwegian North Sea. • Oil found offshore Dubai.

Hughes Tool Co. introduces the first steel tooth bit with journal bearings.

Baker Oil Tools forms Baker Automation System after acquiring Galigher Co., Rotary Oil Tool Co. and Associated Engineering and Equipment Co.

1970

• Corning Glass creates optical fiber for data transmission. • Computer floppy disk introduced. • Aswan dam completed in Egypt.

• Ekofisk field discovered in Norway. • Wattenberg field discovered in Colorado. • U.S. electric utilities switch from coal to oil.

Hughes Tool Co. introduces first journal-bearing tungsten carbide bits.

Baker Oil Tools acquires Lynes, Inc.

1971

• VCRs introduced. • Mao Zedong invites U.S. ping pong team to China.

• Brent field discovered in U.K. North Sea. • North Rankin gas field discovered in Australia.

Baker Oil Tools introduces products for remedial stimulation, “E” series gate valves and expands gravel packing services.

• Baker Oil Tools acquires Milchem, the drilling fluids and chemical company and Dixieco, a provider of hydraulic workover services. • Baker Oil Tools revenues exceed $100 million, 40% from international business.

1972

• Terrorists attack Olympic games in Munich. • First mass-produced video game introduced.

• Edda and Frigg fields discovered off Norway. • Attake field found in Indonesia.

• Christensen makes prototype of the first PDC drill bit. • Teleco begins development of mud pulse telemetry to convey drill bit location.

• Hughes Tool Co. becomes a public company. • Petrolane acquires Whipstock, Inc. • Baker acquires EXLOG mud logging company and Harold Brown, a gas lift company. • Baker’s old Navigation plant is demolished and replaced by a new building.

1973

• Arab oil embargo causes first “oil shock.” • U.S. withdraws from Vietnam.

Christensen expands downhole product range to stabilizers, jars and motors.

• BOT acquires Tri-State Oil Tool Industries, a fishing tool company, and Compressors Automation Controls, a manufacturer of instrumentation and safety systems. • Magna acquires Aquaness Chemicals.

1974

• Bar-coded products first sold in American stores. • President Nixon resigns.

• International Energy Agency established. • Alaska pipeline approved.

• Double acting hydraulic jar developed. • Horizontal well techniques deployed in the U.S.

• Hughes acquires Byron Jackson Inc. (BJ), provider of rig tools and oilwell cementing and stimulation. • Hughes opens new plants in Argentina and Northern Ireland. • Baker acquisitions include Hydraulic Workover, Inc. and Ramsey Engineering.

1975

• Civil war plagues Lebanon. • Microsoft founded. • First U.S. fuel efficiency standards

• First oil produced from U.K. North Sea. • Oil discovered in U.S. Rocky Mountain overthrust belt.

• Baker introduces subsurface safety valve and corrosive environment packer. • EXLOG introduces GEMDAS computerized mud logging unit.

• Baker completes merger with Reed Tool Company and becomes a Fortune 500 company. • Toyo-Petrolite joint venture is formed in Japan.

1976

• South Vietnam falls to Communists. • Jimmy Carter becomes U.S. president

Discovery of oil fields in Mexico’s Bay of Campeche.

• Dresser Atlas introduces carbon/oxygen log. • Baker launches surface-controlled subsurface safety valves and tubing hanger systems.

• Baker Oil Tools changes name to Baker International Corporation. • Hughes Tool Co. acquires Regan Offshore. • Howard Hughes, Jr. dies.

1977

• Elvis Presley found dead. • First test tube baby born.

Alaska pipeline begins operation.

Newpark introduces New-Drill PHPA drilling fluids system.

Modernization of Hughes Tool plant in Houston progresses after delays caused by a 5-week strike.

59

1978-1987 60

Boom, Bust and Consolidation

T

he years 1978-1987 would turn out to be, by turns, the most exhilarating and the most traumatic decade in Baker Hughes’ history. The oil embargo of 1973, the rise of OPEC, and the Iranian revolution drove crude oil prices to record levels. Heightened prospects for oil, natural gas and coal as well as new tax incentives attracted investment from both established companies and speculators. In this booming environment, most oilfield service companies pursued a strategy of expansion by increasing their presence in North America and international markets, and by purchasing other companies. By December 1981, the U.S. rig count reached 4530 active rigs, and demand for oilfield products and services seemed unquenchable. 61

1978-1987 T

he exuberant boom faded quickly in 1982 as the U.S. economy entered a recession, demand for energy declined sharply, and upstream investment dried up. By October, the U.S. rig count had fallen 47%, and the oilfield service sector found itself with a huge overcapacity of facilities, equipment and people. For the rest of the decade, oilfield companies downsized, contracted, combined, and looked to international markets to assure their survival. In 1986, when actions by OPEC drove oil prices as low as $8 per barrel, even the strongest oilfield companies reported record financial losses. In 1987, in response to the weak market and continued industry overcapacity, Baker International and Hughes Tool Company merged to form Baker Hughes Incorporated.

Chinese Vice Premier Deng Xiaoping during his visit to the Hughes Tool Plant in Houston, 1979 Hughes Tool Company President & CEO James R. Lesch (left) with Chairman Raymond M. Holliday

Boom Years: Hughes Tool Company After it became a public company in 1972, Hughes Tool pursued a strategy of adding product lines and increasing geographic coverage. In 1978, it acquired Brown Oil Tools, a leader in liner hanger technology and a provider of equipment for cementing, completion and workover. The company also acquired McMurry Oil Tools, whose products included gas lift valves, side-pocket mandrels, and coupons for monitoring corrosion in pipelines. Hughes also added a plant in Singapore to manufacture tool joints and a facility in Brazil to produce drill bits, rig equipment and drill collars. In 1979, Deng Xiaoping, the Vice Premier of the People’s Republic of China visited the Hughes Tool plant in Houston during his historic and highly publicized trip to the United States. Hughes had been selling drill bits to China since it opened to Western companies in 1973. In 1980, Hughes signed a 10-year agreement to supply bits to the Chinese. In 1980, Hughes Tool Company’s revenue exceeded $1 billion for the first time, with sales of $1.2 billion, a 50% increase from 1979. During 1980, Hughes acquired Centrilift from Borg Warner, and the Claremore, Oklahoma, electrical submersible pump (ESP) plant was added in the same year. Hughes also acquired Submergible Oil Services (SOS) in 1980 and combined it with Centrilift. SOS had developed variable speed drive technology, which optimized pump system performance and efficiency. In 1981, Hughes Tool Company’s revenues increased 46%, reaching $1.8 billion. During the year, the company built a manufacturing

Centrilift-Hughes plant in Claremore, 1980 62

plant in Huntsville, Texas for Brown Oil Tools. As the drilling fluids business grew, the company re-named its mud division as Hughes Drilling Fluids and invested in a new barite grinding plant in Sheldon, Texas. BJ-Hughes Services expanded its pumping operations during the year. In 1981, James R. Lesch was named Chairman, President and Chief Executive Officer of Hughes Tool Company at Raymond Holliday’s retirement.

Hughes started manufacturing natural diamond bits in 1982.

Despite signs of a downturn in early 1982, Hughes made investments for further growth. Centrilift-Hughes opened a new multi-conductor cable plant in Claremore, Oklahoma, making it the only ESP manufacturer capable of supplying every component of the ESP system. Centrilift also built a new test facility for high-temperature pumps, and introduced its new horizontal injection pump and a smalldiameter pump for use in smaller casing sizes. Hughes also purchased two Metallurgical Products Division (MPD) plants from General Electric, which made tungsten carbide inserts for drill bits, mills and mining tools. Hughes Tool Company added diamond drill bits to its product line in 1982, with PDC and natural diamond bits. With this addition, Hughes Tool Company became the only supplier at the time that was capable of providing every type of drill bit. The company also introduced robotics on its assembly line. Also in 1982, Hughes Drilling Fluids introduced two low-toxicity fluids systems, and BJ-Hughes Services offered new, low-temperature cement for operations on the North Slope of Alaska. Brown Oil Tools introduced new retrievable packers, and new liner hangers, set both hydraulically and mechanically, which enabled the division to set several weight and depth records for liner string installation. During 1982, the Hughes Sand Control product line was commercialized on the Gulf Coast.

Hughes Drilling Fluids introduced low-toxicity fluids in 1982.

Financial results for Hughes Tool Company were disappointing in 1982, with sales down 9.3% from the prior year, and net income down by 42.4%. With industry over capacity, margins were impacted by deep discounts in most product lines. By the end of the year, the company had laid off 4700 employees and several of its manufacturing plants were closed, with production consolidated into other facilities. Despite its difficulties, Hughes Tool Company looked back on its first 10 years as a public company with considerable pride. Its revenues had increased at an average growth rate of 29.9% per year since going public, from $151 million in 1973 to $1.6 billion in 1982.

Brown Oil Tools’ SMC liner hanger, 1982

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1978-1987 Rapid Growth for Baker International In 1979 Baker International’s revenues were up 27%, exceeding $1 billion for the first time. It was organized into three operating units, Baker Drilling Equipment, Baker Oil Tools, and Baker Mining Equipment, each with several divisions. In 1980, revenues increased another 32% to $1.5 billion, based largely on the growth of its drilling-related product lines, which had been added in the late 1960s. In 1981, Baker International revenues grew another 38%, topping $2.1 billion. In 1981, Baker opened the safety systems plant in Broken Arrow, Oklahoma, and introduced a new line of subsurface safety valves. The company enlarged its manufacturing plant in Singapore and expanded operations in Saudi Arabia and West Africa. The company formed Baker Supply Products Division (Baker SPD) to compete in the oilfield supply store segment.

Baker International revenues topped $2.1 billion in 1981.

The Baker Sand Control division added seven bases in the U.S., Latin America and West Africa and developed a single-trip, multi-zone gravel pack system that cut rig time in half compared to conventional methods. The division also built a sand control manufacturing plant in Singapore. EXLOG introduced a probe-based measurement-while-drilling system in 1980, and Baker Service Tools developed a downhole motor that went commercial in 1981. In 1980, Milchem formed domestic and international divisions for its drilling fluid business and in 1981 opened 12 new locations in nine countries. In 1980, Milchem introduced the first hightemperature polymer drilling mud. In 1982, Milchem opened a barite mine in Arkansas and installed a grinding mill in Venezuela. Also in 1982, the division began construction on its 12-story Milchem Place building on Essex Lane in Houston; the facility would eventually become the Baker Hughes corporate headquarters. Magna, the oilfield chemical division, grew rapidly by taking advantage of increased drilling, workover and enhanced oil recovery operations.

Milchem introduced high-temperature polymer mud in 1980. 64

Baker International also invested in its mining equipment businesses, believing that coal mining would become a growth market during the energy crisis, and that metals would be needed as raw materials for the growing economy.

In 1982, the company also established “Goals and Controls” budgeting, which was the basis of the quarterly planning process that the company still uses today. Baker International’s financial results in 1982 reflected the downturn that began in the second quarter of that year. The company’s revenue growth rate slowed to 18% for the full year. Not only had the drilling market collapsed, but the metals mining industry had its worst year since 1929, and the growth in coal mining had not materialized.

Built in 1982, the Milchem Place building at 3900 Essex Lane served as the Baker Hughes corporate headquarters from 1987 until 2006.

Other Growth Companies During the boom years after 1977, Dresser Atlas expanded international operations into the North Sea and to Venezuela, Argentina and Saudi Arabia. By 1982, the company had 75 units working outside the United States. Dresser Atlas used computer technology to design its tools and acquire data in the field. Several new services were introduced, including compensated neutron, Acoustilog® and improved carbon/oxygen logging services. The company had a growing staff of sales engineers and log analysts to promote the company and assure clients gained value from its services. Eastman Whipstock reinforced its reputation as a leader in directional drilling when it drilled relief wells to kill major blowouts in the Arun field of Sumatra (1979) and in Mexico’s Bay of Campeche (1980). Eastman directional experts used mini-computers for well planning and wireline steering tools for well guidance to enable the relief wells to intersect very small targets. During 1980-81, Eastman Whipstock carried out a broad expansion program establishing over 20 new facilities in 15 countries. The company opened an instrument assembly plant and an oilfield machine shop in Abilene, Texas, and invested in development of measurementwhile-drilling, downhole motor, and gyroscopic survey technology. In 1979, Christensen Diamond Products was purchased by Norton Company, an abrasives manufacturer from Massachusetts that wanted to profit from the energy boom. The company reorganized into four groups. The Diamond Products group advanced PDC bit technology and introduced sintered diamond bits for harder formations. The Drilling Products group, driven by engineering in Celle, Germany, introduced new drilling motors and turbines. Christensen MWD developed the Accu-Trak measurement-while drilling system, which went commercial in 1982.

In 1982, the Baker Training Center was opened on W.W. Thorne Road in Houston, to help the many new employees gain necessary skills.

In 1982 Sonat (formerly Southern Natural Gas) acquired Teleco Oilfield Services. The company continued to advance measurementwhile-drilling technology by adding formation evaluation sensors to its service suite. In 1984 Teleco introduced its directional-gamma MWD system, which could provide readings of formation changes. In 1986, the company introduced its Resistivity Gamma Directional system to identify formation tops while drilling. 65

1978-1987 Hughes Responds to the Downturn Hughes Tool Company recorded an operating loss of $91 million in 1983 and a loss of 134 million in 1984, then broke even in 1985 as it took major steps to respond to the industry downturn. With an estimated overcapacity of 50% in most product lines, oilfield service firms had to offer steep discounts to price-conscious customers. Only technologically superior products could be sold at adequate margins. Hughes consolidated its eleven operating divisions into five business units and closed a plant in California. The company sold excess inventory and disposed of six different product lines. To reduce overcapacity in the pressure pumping business in the U.S. and Canada, BJ-Hughes Services and Dresser Titan Services, Inc. formed a general partnership called BJ-Titan Services Company.

Hughes reduced overcapacity in the pressure pumping business by combining BJ-Hughes Services and Dresser Titan to form BJ-Titan Services Company.

The company continued to invest in new technology. Development efforts resulted in new J22C Tricone® drill bits from Hughes Tool; cement foamed with nitrogen for deeper wells, and a new stimulation vessel from BJ-Hughes Services; cable for hostile well environments and surge protection systems from Centrilift-Hughes; stronger liner hangers from Brown Oil Tools; and new drilling motors from the Oncor group (whose plant was located on what is now the 2001 Rankin Road campus). Hughes Tool companies reorganized geographically to pursue international markets. With a presence in 50 countries, the company had 16 international manufacturing plants, including JV facilities, and licensee plants in Saudi Arabia, Canada and Japan. In 1985, a drill bit plant in Jiang Han, China, started making bits based on Hughes technology, reducing direct sales to China and lowering the volume through the Houston drill bit plant. As the rig count fell 18.5% in 1985, prospects for 1986 looked particularly bleak.

Baker Faces an Oilfield Recession

Baker International acquired Newpark Drilling Fluids and combined it with Milchem to form Milpark Drilling Fluids.

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In 1983, Baker International’s revenues declined by 27.5% from the previous year, and the company reported a loss of $63.5 million, after a $205 million write-off. Revenues were flat in 1984. During the year, Baker combined operating divisions and laid off 12,500 people. Baker management warned that OPEC would drive prices down further, and the surplus of natural gas in the U.S. (“the gas bubble”) drove down drilling and completion business in the United States.

Oil company customers also were restructuring instead of exploring for new reserves, and the mining sector was hurt by a slow U.S. economy. Baker sold its Kobe hydraulic pump business in 1984 and further consolidated its division structure. To gain business from producing wells, the company entered the artificial lift business by starting the Baker Lift Systems ESP division in Oklahoma City and by purchasing a beam pump company. The Magna chemical division focused on a “Thin Film Spreading Agent,” which was expected to dramatically improve rates of oil recovery from older wells. In 1985, Baker International acquired the Newpark Drilling Fluids division from Newpark Resources and combined it with the drilling mud business of Milchem to form Milpark Drilling Fluids. The Milchem chemical group was combined with Magna to form Baker Performance Chemicals.

An Eastman Whipstock directional driller reads a single-shot survey.

In 1985, revenues increased 3.8%, and James D. Woods was named President and COO, with a mandate to enhance gross margins and control costs as the industry faced the prospects of a dismal year in 1986.

Other Companies Respond After 1982, other future Baker Hughes companies also had to respond to the industry downturn by consolidating and downsizing. However, the tight market did not stop ongoing technical innovation. In 1983, Norton Christensen launched the slow-speed, multilobed Mach 1C drilling motor and a new hydraulic drilling jar. In 1984, the company introduced the industry’s first steerable motor system using a Shell patent, and combined it with PDC bits and its MWD system to form the NorTrak system, which enhanced accuracy of directional wells. In 1985, Norton Christensen drilled the world’s first medium-radius horizontal well in Texas for Arco, using specialized motor technology. In 1984, Eastman Whipstock was acquired by Texas Eastern Corporation, and gained the short radius horizontal drilling system that Texas Eastern had developed for re-entry drilling. Eastman marketed the “lateral drilling” concept, and built industry awareness for the potential benefits of horizontal well technology. In 1986, Eastman Whipstock and Norton Christensen were combined to form Eastman Christensen. The new company joined the Eastman directional drilling service network with technology developed by Christensen. This combination enabled the company to become the industry’s leading proponent of steerable motor and horizontal drilling services.

An Eastman Christensen directional supervisor begins a steerable motor operation using the NorTrak system.

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1978-1987 In 1987, Litton Industries and Dresser Industries formed a joint venture combining their respective divisions Western Geophysical and Dresser Atlas. The combined company was called Western Atlas. Dresser Atlas was renamed Atlas Wireline Services.

Baker International and Hughes Tool Company Merge In 1986, OPEC actions forced oil prices downward so they reached a low point of $8 per barrel in August. Baker International’s revenues declined 18% during the year and Hughes Tool Company’s revenues were down 40%. Taken together, the companies had combined losses of $804 million for the year. Both companies believed the industry would weather the storm, but they understood that the key to survival in the interim was to reduce surplus capacity to deliver both products and services. On April 3, 1987, Baker International Corporation and Hughes Tool Company merged to form Baker Hughes Incorporated. E.H. “Hubie” Clark was named Chairman of the Board and James D. Woods was named President and Chief Executive Officer.

The combined company was organized in three groups with a total of 21 divisions:  Drilling Equipment: Hughes Tool Company, Baker Hughes Tubular Services, Tri-State Oil Tools, Exlog/TOTCO, Milpark Drilling Fluids.  Production Tools: Baker Oil Tools, Baker Service Tools, Baker Sand Control, Baker CAC, Baker Performance Chemicals, Centrilift, Hughes Services International, Develco, BJ-Titan  Mining Equipment: BGA International, Ramsey Technology Inc., Baker Hughes Mining Tools, Chas A. Lewis; WEMCO, EIMCO process equipment, EIMCO mining equipment The company had to divest Reed Tool Company to satisfy antitrust concerns in the drill bit segment. The new company combined the long traditions of two oilfield service leaders and was able to offer customers a wide range of technologies for drilling, completion and production. Revenues for BHI’s first year of operation were $1.4 billion dollars, and the company reported a net loss of $254 million.

James D.Woods became president and CEO when Baker Hughes was formed in 1987.

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Year

The World

Energy Industry

1978

• John Paul II becomes Pope. • First test tube baby born. • Khomeini leads Islamic revolution in Iran.

Cognac platform installed in 1025 ft of water in the Gulf of Mexico.

1979

• Iranian revolution topples Shah of Iran, causing a second “oil shock.” • U.S. Embassy in Teheran is seized. • Margaret Thatcher becomes first female prime minister of Great Britain.

• Western energy companies expelled from Iran. • Three Mile Island nuclear accident reduces demand for nuclear power.

1980

• Ronald Reagan is elected U.S. President. • Beatle John Lennon is assassinated. • Iraq launches war against Iran.

Drill-in fluids, synthetic oil-based drilling fluids introduced.

1981

• NASA launches and lands a reusable spacecraft called the Space Shuttle. • New plague identified as AIDS. • IBM introduces the PC.

U.S. rig count reaches 4,530 active rigs.

1982

• OPEC introduces production quotas. • Argentina invades Falkland Islands. • First implant of the artificial heart

• Oilfield market begins to decline. • Unocal drills the first horizontal well in the North Sea.

1983

• U.S. embassy in Lebanon is bombed. • Soviets shoot down Korean airliner.

Harriet field discovered in Western Australia’s Carnavaron Basin.

1984

• Huge poison gas leak in Bhopal, India. • Indian Prime Minister Indira Gandhi killed by her bodyguards.

Chevron purchases Gulf Oil.

1985

• Genetic engineering begins in the rapidly growing biotech industry. • Hole in the ozone layers discovered. • Mikhail Gorbachev becomes the leader of Soviet Union.

1986

• Challenger space shuttle explodes. • Chernobyl nuclear accident • Soviet Union launches the MIR space station.

1987

• Black Monday on New York Stock Exchange • DNA first used to convict criminals.

Technology • Teleco Services introduces first MWD system. • Centrilift introduces Centriline ESP cable. • Milchem introduces CARBO-FAST oil-based mud. • Bakerline casing liner hanger introduced.

Baker Hughes Milestones • Hughes Tool acquires McMurry Oil Tools and Brown Oil Tools. • Hughes Tool opens plants in Brazil and Singapore. • Baker Sand Control formed.

• China vice Premier Deng Xiaoping visits Hughes Tool headquarters in Houston. • Centrilift breaks ground on a new manufacturing and office facility in Claremore, Oklahoma. Baker Sand Control introduces Beta system for gravel pack completions.

• Centrilift is sold to Hughes Tool Co., becomes Hughes-Centrilift. • Hughes-Centrilift purchases SOS, manufacturer of variable speed ESP drives. • Hughes Tool Company revenues reached $1.2 billion.

• Atlas Wireline Services runs the first tubing conveyed perforating run. • Centrilift develops horizontal injection pump.

• Baker International acquires Arjay, Inc. and merges it with Magna. • Hughes Tool acquires Mining Products Division of General Electric, a supplier of tungsten carbide products. Centrilift opens cable plant in Claremore.

Norton Christensen introduces steerable drilling motor system.

• Texas Eastern acquires Petrolane, Inc. • Arco Performance Chemicals merges with Oilfield Chemicals to form Chemlink. • Baker International renames Magna as Baker Performance Chemicals.

• Norton Christensen introduces the first medium radius horizontal drilling system. • Baker introduces Metal Muncher milling technology. • Baker introduces the FlexLock liner hanger.

Milchem forms joint venture with drilling fluids division of Newpark Resources to form Milpark.

Oil price collapse causes industry consolidation.

• Petrolite introduces the first iron control additive for use in acidizing asphaltic crudes. • Centrilift enters ESP water well market.

• Baker International moves its headquarters from Orange, California to Houston. • Eastman Christensen formed as joint venture owned by Texas Eastern and Norton companies.

Shell establishes a drilling depth record at its Coulomb prospect in 7,520 ft of water in the Gulf of Mexico.

Atlas Wireline Services introduces formation density tool.

• Baker Hughes formed by merger of Baker International and Hughes Tool Co. • Western Atlas formed through the combination of Western Geophysical and Dresser Atlas. • EXLOG moves headquarters from Sacramento to Houston. • Milpark and Milchem combined with Hughes Drilling Fluids to form Milpark Drilling Fluids. • Baker Performance Chemicals formed to serve oilfield and petrochemical sectors.

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1988-1997 70

A Decade of Acquisitions

D

uring its first decade as Baker Hughes Incorporated, the company made a series of more than 30 acquisitions and divestitures to reinforce its core technical competencies in drilling, formation evaluation, completion and production. Understanding the importance of technology as a differentiator, Baker Hughes made an ongoing commitment to research and development to assure a steady stream of innovations. Horizontal drilling and completion technology, for both new and re-entry sidetrack wells, was a particular focus for the company’s technology programs. During the decade, Baker Hughes also pursued non-oilfield businesses, with the formation of its Baker Process unit. 71

1988-1997 Acquisitions and Divestitures

I

n 1988, despite the flat U.S. drilling activity, the new corporation returned to profitability with a net income of $103 million on revenues of $2.32 billion. During the decade, Baker Hughes set the objective of being either the #1 or #2 provider in each of its market segments. This approach, first espoused by General Electric, was the driving force behind Baker Hughes’ strategy for acquisition and divestiture of business lines. In 1988, Baker Hughes divested its interests in Vetco Gray (subsea equipment), BJ Machinery (drilling rig surface equipment) and Econolift (progressive cavity pump systems). In 1989, the company sold its mining equipment group, but acquired EDECO Petroleum Services, which sold electrical submersible pumps and completion systems. Baker Hughes management did not see long-term potential in specialty tubular products, and considered the pressure pumping business too capital intensive. In response, the company sold the tool joint business of Hughes Tool Company, and completed an initial public offering (IPO) to spin off BJ Services as a separate company in 1990.

Eastman Teleco was a leader in directional drilling and coring services.

Baker Hughes management recognized the importance of directional drilling in offshore field development and saw the potential for growth in horizontal drilling for increasing hydrocarbon recovery. To gain a leading position in these technologies, as well as in diamond drill bits, Baker Hughes acquired Eastman Christensen in 1990. Then in 1992, Baker Hughes purchased Teleco Oilfield Services, the industry leader in measurement-while-drilling, and combined it with the Eastman Christensen division to create Eastman Teleco. These acquisitions coincided with high levels of horizontal drilling activity in the Austin Chalk trend in Texas. Also in 1990, Baker Hughes acquired ChemLink and combined it with Baker Performance Chemicals to form the largest U.S. oilfield chemical treatment company. During the same year, Baker Hughes acquired the fishing tool business of Wilson Industries and combined it with Tri-State Oil Tools and purchased Elder Oil Tools to add to Baker Oil Tools’ product line and increase its manufacturing capacity. With the expectation of growth in environmental protection activities, Baker Hughes acquired in 1989 Bird Machine Co., a supplier of solid/liquid separation equipment, to add to EIMCO Process Equipment Co.

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Realignment of Product Line Divisions, INTEQ Created During a decade of acquisitions and divestitures, Baker Hughes continually realigned its product line divisions to achieve synergies, enhance focus, and promote efficiency. In 1992, with the formation of Eastman Teleco, Baker Hughes combined the Christensen diamond bit product line with the Hughes Tool Company to create Hughes Christensen, which became the industry’s leading supplier of both Tricone® and PDC bits. During the early 1990s, many oil and gas companies merged to form larger companies, and they sought ways to achieve efficiencies and maximize profitability. In the process, the number of oil and gas operators decreased and the consolidated companies shed staff and sought to shift project management and research activities to the service companies. Sensing a change in customer needs, Baker Hughes formed a task force to chart the company’s response to it. Executives on the task force interviewed a cross-section of oil company managers to understand industry trends and producer priorities. At the time, a majority of operators expressed the desire to deal with fewer service companies that could provide broad, integrated solutions.

The merger of Hughes Tool Company and Christensen launched Hughes Christensen as a leader in both Tricone and PDC bits.

In response, Baker Hughes formed a new division in March 1993, Baker Hughes INTEQ, with a broad product line and the mandate to integrate and deliver comprehensive solutions. INTEQ combined Eastman Teleco, EXLOG, Develco, Baker Sand Control and Milpark Drilling Fluids. At the same time, the Tri-State fishing tool division and the Baker Service Tool workover and remediation division became product lines within Baker Oil Tools. The divisional product line organization was fine-tuned in 1996 when the Sand Control product line was transferred from INTEQ to Baker Oil Tools and the Baker Hughes Solutions division was formed to handle integrated project management.

The 1993 combination of Baker Oil Tools and Baker Service Tools created the industry’s leading well completion company.

Baker Hughes Chairman, J.D. Woods announcing the formation of Baker Hughes INTEQ in 1993

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1988-1997 Technology Innovations

Baker Oil Tools introduced multilateral completions in 1994.

I

n 1988, Baker Sand Control performed the first horizontal gravel pack completion. In 1990, Baker Sand Control also developed the gravel pack simulator to test its new products under simulated highangle downhole conditions. In 1994, Baker Oil Tools introduced multilateral completion systems, that enabled operators to install completion tools and perform selective intervention work in multiple horizontal sections from a common main wellbore. The division established itself as the leader in high-end multilateral solutions. Simultaneously, Baker Hughes sought to strengthen its directional drilling capabilities. Soon after the creation of INTEQ, the company introduced the NaviGatorTM reservoir navigation system, combining the Navi-Drill® steerable drilling motor and the quantitative resistivity MWD measurements near the bit. The system was specifically designed to use geosteering techniques for precise well placement within the reservoir. In 1995, innovations across the Baker Hughes companies were combined to offer cost-effective horizontal re-entry systems that enabled operators to boost production from old wells and extend the economic life of existing fields.

INTEQ introduced the NaviGator reservoir navigation system in 1994.

A gravel pack simulator helped Baker Sand Control engineers design gravel pack completions for horizontal wells.

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In 1997, Baker Hughes introduced more than 20 new products and services. The innovations included the AutoTrak® Rotary ClosedLoop system developed with Agip S.p.A. to allow the driller to automatically steer the drilling assembly along a pre-programmed path and the EDGE™ Intelligent Completion System that enabled packers to be set by remote control from the surface.

Introduced in 1997 with Agip S.p.A, the AutoTrak Rotary Closed-Loop system was a step change in directional drilling performance.

New Bit Plant in The Woodlands In the early 1990s, Hughes Tool Company, under the direction of division president Andy Szescila, initiated a plan to revolutionize its drill bit manufacturing processes. The existing plant on Polk Street was spread out over 14 separate buildings, and manufacturing of a single bit could take several weeks. To reduce manufacturing cycle time, the company built a state-of-the-art bit facility in The Woodlands, Texas, which took over Tricone® manufacturing in 1993. As a result, a new roller cone bit could be built in a few days. In the summer of 1995, the Christensen PDC plant was brought into The Woodlands facility from Salt Lake City. Baker Hughes redeveloped the Polk Street site as a modern, urban industrial park, whose buildings were leased to smaller companies.

Innovations in Drilling Fluids From 1988 to 1993, Baker Hughes offered drilling fluids through its Milpark division. In March 1993, Milpark drilling fluids business was integrated into INTEQ. Under the INTEQ banner, the company was an innovator in water-based fluid systems, with its AQUA-DRILL® system that utilized cloud-point glycol chemistry. The division also introduced unique synthetic-based fluid systems, such as the ISO-TEQ™ and SYN-TEQ™ systems, for use in environmentally sensitive areas. In 1994, INTEQ introduced PERFFLOW™ drill-in fluids, which minimized formation damage and helped operators increase initial production.

Milpark Drilling Fluids division was integrated into INTEQ in 1993.

Hughes Christensen plant in The Woodlands was opened in 1993.

PERFFLOW drill-in and completion fluids from INTEQ reduced formation damage.

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1988-1997 Centrilift Expands ESP Market During the 1990s, Centrilift continued to strengthen its manufacturing capabilities in Claremore, Oklahoma, introduced new products and expanded its markets to the Eastern Hemisphere, including Russia, China, and to Venezuela in South America. In 1993, Centrilift began to export ESP systems to the Former Soviet Union, establishing Baker Hughes as a supplier in this slowly emerging market. During the decade, Centrilift introduced the Electrospeed® ICS Variable Speed Controller, and the Horizontal Injection Pump. In 1997, Centrilift strengthened its capabilities with the acquisition of Oil Dynamics, Inc, an ESP competitor with unique technology. The same year, Centrilift joined Baker Process Systems and Baker Oil Tools in developing the HydroSep™ downhole oil/water separator.

In the 1990s, Centrilift introduced the Electrospeed variable speed controller and expanded its markets in the Eastern Hemisphere.

Process Equipment During the 1990s, Baker Hughes also served the process equipment market segment. Process companies included EIMCO Process Equipment, a supplier of liquid separation and filtration equipment for wastewater treatment; Bird Machine Company, manufacturer of centrifuges for separation of solids from effluents, and EPEC, a supplier of municipal sewage treatment equipment. In 1992, the process division’s name was changed to EnviroTech. In 1994, as the process industries business declined, Baker Hughes divested the Measurement and Controls Group of EnviroTech and organized the remaining companies into the Process Equipment Operations group. In 1996, Baker Hughes acquired Vortoil Separation Systems, a leader in hydrocyclones for separating oil from water.

Baker Performance Chemicals had extensive business in Venezuela. 76

Western Atlas Logging Services During the 1990s, Western Atlas Logging Services expanded its capabilities to 100 different logging services, covering a full complement of resistivity, acoustic and radioactivity measurements. The company had 80 locations worldwide. Acquisition of NL McCullough in 1988 enabled the company to provide pipe recovery services. In 1997, Western Atlas acquired WEDGE DIALOG, Inc. to strengthen its cased hole logging services. Western Atlas Logging Services’ technology advancements during the decade included the ECLIPS™ logging unit, Predator™ deep penetrating and Jumbo Jet™ big hole perforating charges, Multipole Array Acoustilog, and Digital Circumferential Borehole Imaging Log.

Western Atlas well logging unit on an offshore rig in the Gulf of Mexico

Baker Petrolite Formed In 1997, Baker Hughes acquired St. Louis-based Petrolite and combined it with Baker Performance Chemicals to form Baker Petrolite. Tracing its roots to William S. Barnickel’s original oilfield demulsifier, the new company could provide products and services for the upstream oil and gas industry, refining and petrochemical customers, as well as the pipeline and agricultural industries. In addition, its specialty polymers business provided products to cosmetics, candle and computer printer manufacturers. With a worldwide distribution infrastructure, Baker Petrolite had major manufacturing locations in Texas, Oklahoma and the United Kingdom. By the end of the year, a new Baker Petrolite company headquarters was under construction in Sugar Land, Texas.

St. Louis-based Petrolite corporation was combined with Baker Performance Chemicals to form Baker Petrolite in 1997.

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1988-1997 Project Renaissance In the fall of 1997, Baker Hughes Chairman Max Lukens convened 400 of the company’s top managers to introduce the concept of “re-engineering the corporation” and to announce the kick-off of Project Renaissance. This multi-year project would develop common processes across the Baker Hughes enterprise, introduce shared services for essential business functions, and implement SAP as a single financial and resource management system for Baker Hughes. (At the time, the company was using over 30 incompatible financial software systems). David Barr was the first head of Project Renaissance. He was succeeded in 1999 by Andy O’Donnell. In 1997, to close out the company’s ninth decade, Baker Hughes revenues were $3.7 billion.

E.H. “Hubie” Clark retired in 1988. Under Mr. Clark’s leadership, Baker delivered the highest return on stockholder equity of any U.S. industrial company during 1971-81, according to Fortune magazine. During Chairman Max E. Lukens’ tenure, the company launched Project Renaissance and acquired Western Atlas.

James D. Woods retired in 1997. Mr. Woods championed the merger between Hughes Tool Company and Baker Oil Tools, and led the company through a series of acquisitions and divestments to establish Baker Hughes as a leading oilfield technology company.

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Year

The World

Energy Industry

Technology

Baker Hughes Milestones

1988

• Pan Am flight 103 is bombed over Lockerbie. • Apple loses lawsuit against Microsoft.

1989

• Berlin wall comes down.

• Mars-Ursa field discovered in the Gulf of Mexico. • Oil tanker Exxon Valdez flounders off the coast of Alaska, causing a 10-million gallon oil spill.

• Western Atlas Logging Services introduces pulsed neutron tool for measuring water behind pipe. • Eastman Christensen introduces “anti-whirl” PDC bits.

BJ-Titan becomes BJ Services division of Baker Hughes

1990

• Iraq invades Kuwait. • Hubbel telescope launched.

First horizontal well in the North Sea signals a decade of horizontal well development.

Eastman Christensen develops coiled tubing drilling.

• Baker Hughes acquires Eastman Christensen. • Baker Hughes acquires Chemlink. • BJ Services goes public.

1991

• Soviet Union breaks up. • Gulf War: U.S.-led coalition drives Iraqis from Kuwait.

Western companies see opportunities in Russian oil industry.

Coiled tubing programs in France and South Texas.

1992

• Official end of the Cold War • Riots in Los Angeles

1993

• Use of the internet grows exponentially. • Record U.S. oil imports

1994

• Eastman Christensen introduces the “egg beater” bit. • Baker performs the first horizontal gravel pack completion. • Atlas Wireline Services logs the farthest extended reach well to date in the Gulf of Mexico.

Petrolite patents a line of H2S scavengers.

• Baker Hughes acquires Teleco Oilfield Services. Combines Christensen’s diamond bit line with Hughes Tool to form Hughes Christensen. • Petrolite acquires Wellchem, Inc. • Atlas Wireline Services introduces ECLIPS™ logging unit.

First installation of commercial subsea multiphase integrated helicoaxial pump and turbine boosting system

• Western Atlas introduces annular flow log. • Baker introduces WindowMaster casing exit system. • Centrilift develops first ESPCP system.

Houston Tricone bit manufacturing operation moved from Polk Street to The Woodlands.

• English Channel tunnel opens. • Nelson Mandela elected President of South Africa.

First ESP in subsea well off Brazil.

• Baker Oil Tools introduces multilateral completion system. • Western Atlas introduces pulsed neutron holdup imager.

1995

• Oklahoma City bombing • Gas attacks in Tokyo subway

U.S. lawmakers pass a royalty relief bill to spur production in the Gulf of Mexico after oil costs average $18.43 per barrel.

• INTEQ introduces the NaviGatorTM reservoir navigation system and NaviDrill® Ultra series motors. • BOT introduces the WindowMaster casing whipstock system.

PDC plant in Salt Lake City moved to The Woodlands.

1996

• Mad cow disease in Great Britain • Two British Royal divorces

• First well drilled in over 7,000 ft of water. • Former Standard Oil divisions reunited to form ExxonMobil. • BP/Amoco/Arco merge in a $635 billion deal.

• INTEQ introduces Multiple Propagation Resistivity™ LWD system • EXCLUDER™ extended life well screen introduced. • Western Atlas Logging Services introduces the Pulsed Neutron Holdup Imager.

• Max Lukens named Chairman, President and CEO. • Sand Control product line moved to Baker Oil Tools. • Baker Performance Chemicals acquires BASF Oilfield Chemicals.

1997

• Hong Kong returned to China. • Scientists clone sheep.

• INTEQ introduces the AutoTrak rotary steerable system, a step change in directional drilling. • Baker Oil Tools installs the first trilateral completion.

Baker Hughes acquires Petrolite and combines it with Baker Performance Chemicals to form Baker Petrolite.

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A New Century and a New Millennium

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he tenth and most recent decade of the Baker Hughes story was shaped by business cycles characteristic of the oil and gas industry. After a poorly timed acquisition and changes at the top, the company’s management defined a strategy that focused on Baker Hughes strengths in the oil field and its specialized technology for oil and gas wells. By 2007, Baker Hughes has achieved rapid growth, and has continued to invest in new technology, global infrastructure and a diverse workforce. The company also has begun to extend its capabilities beyond the wellbore to provide customers with broader solutions to help them understand their reservoirs and maximize recovery. 81

1998-2007 A Major Acquisition

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n August 10, 1998, Baker Hughes merged with Western Atlas to complete its largest acquisition since Baker International and Hughes Tool Company combined. Western Atlas was comprised of: Western Geophysical, the world’s largest seismic company; Western Atlas Logging Services, the industry’s second largest wireline logging and perforating supplier; and Western Atlas E&P, which owned oil producing assets in Nigeria. CEO Max Lukens said that the merger had “transformed Baker Hughes from a provider of discrete oilwell products and services into an integrated life-of-the-field company focused on the reservoir.” Unfortunately, by the time the Western Atlas deal was closed, the Asian financial crisis had caused the collapse of stock markets in Thailand, South Korea and Indonesia and had driven the world economy into a recession. The price of crude oil dropped below $15/barrel and oil and gas companies curtailed their exploration and development investments substantially.

Western Atlas wireline logging unit in Venezuela. The merger with Western Atlas added wireline logging and formation evaluation technologies to the Baker Hughes portfolio.

Responding to a Downturn The downturn continued in 1999, as oil prices dropped to $11/barrel and the worldwide rig count declined by 21%. This drilling activity drop off and overcapacity in the seismic industry resulted in poor financial results for service companies. In 1999, Baker Hughes reduced variable and fixed costs by $1 billion, laid off 10,000 people and took a write-off for its seismic operations, as Western Geophysical removed 16 vessels from service. To instill financial discipline, Baker Hughes adopted its Baker Value Added (BVA) metric in 1999. BVA is a measure of financial performance that integrates operating results with the balance sheet and measures performance in relation to the cost of invested capital. Baker Hughes Business Support Services was established in the first quarter of 1999, with BHBSS employees providing shared services in Accounting, Payroll and Information Technology for corporate functions and five divisions.

BHBSS provides shared services in accounting, payroll and IT.

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Project Renaissance continued, and SAP had been installed for all U.S. locations of Baker Oil Tools, INTEQ, Baker Atlas and Baker Petrolite by the end of 2000. In December 2001, Project Renaissance was officially closed.

New Facilities In 1998, Baker Petrolite moved into its new Sugar Land, Texas headquarters, combining laboratories and administrative offices.

Baker Petrolite’s headquarters building in the Sugar Land suburb of Houston includes state-of-the-art chemical research laboratories.

INTEQ and Baker Atlas combined their Houston engineering and manufacturing operation and opened the Houston Technology Center at 2001 Rankin Road in 2000, serving as headquarters for both divisions. The Westheimer campus previously occupied by Western Atlas, was sold.

Two New Chairmen In early 2000, Max Lukens resigned his position as chairman and CEO. The board of directors appointed Joe B. Foster as interim Chairman, President and CEO. A Baker Hughes board member for 10 years, Mr. Foster directed the company through the management transition as market conditions improved. In August 2000, Michael E. Wiley, was named Chairman, President and CEO. Mr. Wiley had made a long career at Arco and was that company’s president when it was acquired by BP. Mr. Wiley set out to establish a high performance culture to guide decision making and a strategic framework to set a steady long-term course for Baker Hughes. To develop the company’s culture he met individually with the company’s 80 top executives, and the Core Values and Keys to Success were crafted and adopted in 2000.

Interim Chairman Joe B. Foster guided the company through the transition period in 2000.

Houston Technology Center at the Rankin Road complex provides engineering research and manufacturing facilities for both INTEQ and Baker Atlas.

As Chairman, Michael Wiley instituted Core Values, Keys to Success and the Strategic Framework at Baker Hughes.

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1998-2007 WesternGeco venture In 2000 to reduce the impact of the severe downturn in seismic services, Baker Hughes formed a venture with Schlumberger to combine the assets of Western Geophysical with those of GecoPrakla. Baker Hughes received $500 million and retained a 30% ownership in the new WesternGeco. Also in 2000, Baker Hughes sold the Nigerian oil-producing assets of its E&P Solutions group.

Strategic Focus In the early 2000s, Baker Hughes reaffirmed its commitment to an organization based on strong product-line divisions and strengthened the “corporate center” with enterprise departments for legal, finance, human resources, marketing and business development functions.

INTEQ has introduced a full suite of logging-while-drilling measurements as part of its integrated bottomhole assemblies.

Financial flexibility also became a priority as Baker Hughes executives stated that they were “determined to manage our business for profitability and to generate adequate returns no matter where we are in the business cycle.” This focus achieved results in 2001, as operating profits doubled for the second year in a row. The Strategic Framework, first introduced in 2003, reaffirmed the company’s oilfield focus, its divisional structure, and its commitment to financial discipline.

Building Technology Leadership From 1998 until the present, Baker Hughes divisions have worked to develop pre-eminent technology positions in key market segments. For INTEQ, the AutoTrak® rotary closed-loop drilling system has been the breakthrough technology of the decade, transforming the practice of directional drilling. Since the AutoTrak system’s introduction in 1997, the system has been continually improved, with its third-generation system introduced in 2002, small-diameter tools launched in 2004, and the AutoTrak X-Treme® system commerialized in 2005. As of mid-2007, AutoTrak systems had been used to drill more than 20 million feet of hole. The AutoTrak system’s “closed-loop” pad steering technology also has been a key feature of other automated drilling devices, including the VertiTrakTM vertical drilling system, CoilTrak® coiled tubing drilling assembly, and the TruTrakTM system for land-based directional drilling.

Technicians prepare the drilling simulator to test a Genesis XT PDC bit under downhole conditions.

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INTEQ has built on the AutoTrak system’s success to develop and introduce integrated bottomhole assemblies that include a full range of logging-while-drilling and drilling dynamics measurements. These are key components in the division’s leading capability to provide customers with “Answers While Drilling.”

In the 1990s, the drilling industry increased its use of PDC drill bits, and Hughes Christensen faced growing competition as more suppliers entered the diamond bit market. To regain its lead, Hughes Christensen launched the Genesis® program. The intensive, threeyear research program was based on the premise that drilling performance could be optimized when the PDC bit was specifically designed to match each drilling application. Launched in 2001, the Genesis product line was a great success, and by 2002 had re-established Hughes Christensen’s lead in the diamond drill bit market. Enhancements to the Genesis program have included Genesis XT bits (2004) and Genesis ZX technology (2006).

The Reservoir Characterization Instrument service has enabled Baker Atlas to establish itself as a leader in deepwater logging.

For the past decade, Baker Atlas has upgraded its technology offering to compete effectively in the high-end wireline logging market. The Reservoir Characterization Instrument® (RCI)® service, first introduced in 1997, has unique capabilities for analyzing formation fluids downhole. The RCI service’s capabilities have enabled Baker Atlas to gain a substantial share of deepwater logging activity. Baker Atlas logged eight of the first 13 exploration wells in deepwater blocks off Angola. Other important technologies introduced by Baker Atlas include the 3D ExplorerSM resistivity logging service for evaluating thinly laminated zones; the XMACSM Elite acoustic logging service for measuring rock properties and correlating with surface seismic measurements; the Earth ImagerSM service for obtaining wellbore images in oil-based mud; and the Magnetic Resonance ExplorerSM service for characterizing and quantifying reservoir fluids. Baker Oil Tools has maintained its historical leadership in completion, intervention and workover technology. Notable innovations in completion technology have included High-Pressure/High-Temperature equipment including packers, flow control equipment and safety valves. Baker Oil Tools also leads the industry in liner hanger technology, including the Flex LockTM liner hanger system. Intervention systems include conventional fishing tools and innovative through-tubing inflatable systems. Baker Oil Tools also introduced a number of key innovations in sand control technology. In 1997, the division first combined its EXCLUDER™ sand control screens with the EQUALIZER™ flow control devices (licensed from Norsk Hydro) to provide completions that would efficiently drain oil reservoirs from long horizontal wells, while delaying water coning. This technology has since been installed in a total of more than 20 miles of horizontal wellbore, with most applications in Norway and Saudi Arabia. Throughout the decade, Baker Oil Tools also has continued to develop gravel packing tools and procedures. In 1999, Baker Oil Tools introduced its first two technology vessels, the Republic Tide and the R.C. Baker, for gravel packing and fracturing service in the Gulf of Mexico.

EXCLUDER sand control screens with EQUALIZER flow control system from Baker Oil Tools represent the leading edge in completion technology for horizontal wells.

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1998-2007 In 2001, Baker Hughes launched the H.R. Hughes technology vessel. The StimForceTM modular stimulation vessel template was first deployed on the deck of a supply vessel in Equatorial Guinea in 2006. Other significant Baker Oil Tools innovations over the past decade include a variety of multilateral completion systems, the InForce™ and InCharge™ Intelligent Well Systems, and expandable solutions for well screens and solid tubulars.

The Baker Oil Tools H.R. Hughes technology vessel is the industry’s largest proppant-capacity fracturing vessel in the Gulf of Mexico.

Baker Petrolite is leveraging its chemical technology expertise to provide engineered solutions for deepwater flow assurance.

Since 1998, Baker Petrolite has held its place as the largest oilfield chemical supplier based on proprietary chemistries and outstanding service. The division’s production chemicals inhibit corrosion, deposition and the build up of waxes and paraffin in producing wells. Baker Petrolite established a leading position in the deepwater market with HI-M-PACTTM hydrate inhibitors and its FATHOM™ deepwater treatment programs. The F.O.A.M.TM program helps operators remove water from gas wells and has been widely applied in North America. In 2006, Baker Petrolite revived its original Tretolite® brand to help market its complete line of demulsifiers for separating oil from produced water. Baker Petrolite also has introduced products and services to help refiners and petrochemical plant operators improve operational efficiency. In 2002, Baker Petrolite formed the Pipeline Management Group (PMG) to provide pipeline integrity services for the world’s aging pipeline systems. Initially, PMG included tethered pipeline inspection services (transferred from Baker Atlas) and pipeline cleaning and flow enhancement services already resident in Baker Petrolite. In 2003, Baker Hughes acquired the Cornerstone Pipeline Integrity Group (CPIG), which had unique “smart pig” technology for in-line pipeline inspection. With CPIG technology, PMG has become a leader in the pipeline integrity market. Centrilift has continued to advance electrical submersible pumping system technology by introducing enhancements to extend run life, even while operating in hostile conditions. New Centurion™ pump features addressed high gas content, high temperatures and high solids content. The Electrospeed® II variable speed controller and downhole performance monitors were introduced to further improve system efficiency. Centrilift also has made strides in extending ESP applications into new applications. The division has installed dual ESP systems for offshore applications, both in subsea and platform wells, often to replace gas lift systems. ESP systems also have been applied as subsea boosters to help move produced oil along subsea tie backs, and to lift oil to Floating Production Storage and Offloading vessels. Centrilift also has applied ESP systems to dewater gas and coalbed methane

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wells, and to pump high-temperature oil from Steam Assisted Gravity Drainage (SAGD) wells.

Centrilift designs and manufactures the complete ESP system, including the pump, motor, seal, power cable and surface controllers.

In the drilling fluids market, Baker Hughes has continued its focus on providing systems that promote drilling efficiency, minimize formation damage and achieve environmental compliance. In 1998, INTEQ Drilling Fluids worked with Hughes Christensen to introduce PENETREXTM rate of penetration enhancer for water-based mud. In 2000, the Dynamic Kill Drilling system was introduced for riserless drilling of deepwater wells. In 2001, the INTEQ Fluids group managed the first zero-discharge project in the deepwater Gulf of Mexico. In 2002, the company acquired Apollo Services, a drilling waste management and cuttings re-injection company, to form its Fluids Environmental Services group. In 2004, the company introduced the PERFORMAXTM high performance water-based mud system. The Drilling Fluids group also established a record of success on deepwater wells using its SYN-TEQTM drilling fluids, advanced laboratory analysis and its Advantage fluids hydraulic modeling software. In 2004, Baker Hughes Drilling Fluids was separated from INTEQ to become a new division focused on drilling and completion fluids and related services.

Oilfield Focus Sharpened In 2002, Baker Hughes sold the Baker Process group, consisting of EIMCO Process Equipment, Bird Machine Group and Petreco International, to focus almost exclusively on the oilfield services industry. In 2004, the company sold Baker Hughes Mining Tools, a unit of Hughes Christensen.

Chad Deaton Named CEO

Baker Hughes Drilling Fluids introduced the XHP/HT viscometer in 2005 to support drilling fluid applications in ultra deep waters.

Baker Hughes strategic focus and financial discipline showed results in 2004, as revenues reached $6.1 billion for the year, up 16% despite lower than expected investment by customers and a 10% decline in the worldwide rig count. On October 25, 2004, Chad C. Deaton succeeded Michael E. Wiley as Chairman and CEO of Baker Hughes Incorporated. As he assumed his position, Mr. Deaton expressed his belief that Baker Hughes’ greatest opportunity for growth “is expansion in geographic markets where we are underrepresented.” He called for increased Baker Hughes presence in Russia and the Middle East and improved relationships with National Oil Company customers. He emphasized the importance of the company’s product line divisions, new technology, and a diverse, global work force.

Chad Deaton, who became Chairman and CEO in 2004, expects Baker Hughes to become the global leader in oilfield services.

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1998-2007 Two Segments/Four Regions In 2005, Baker Hughes had another outstanding year, as revenues reached $7.2 billion. During the year, the company was organized into two business segments and aligned into four consistent geographic regions. The Drilling and Evaluation segment includes four divisions: Hughes Christensen, Baker Hughes Drilling Fluids, INTEQ and Baker Atlas. The Completion and Production segment includes Baker Oil Tools, Centrilift and Baker Petrolite. At the same time, Baker Hughes aligned its global operations into four geographic regions: North America, Latin America, Europe Africa Russia Caspian, and Middle East Asia Pacific.

Exiting WesternGeco In 2006, Baker Hughes sold its 30% interest in the WesternGeco venture to Schlumberger for $2.4 billion, ending the company’s involvement in the surface seismic acquisition business.

ProductionQuest Pursues Production Optimization In 2005, Baker Hughes formed a production optimization business unit to help oil and gas company customers maximize recovery from both new and existing wells. The company purchased full ownership of QuantX Wellbore Monitoring, which had been formed as a joint venture between Baker Hughes and Expro International, and the Luna Energy company, which had developed fiber optic sensing technology. In addition, Baker Hughes acquired Nova Technologies Corporation, a supplier of downhole gauges and subsea umbilical installation services. In 2006, these product lines were combined with the SentryNet chemical automation business from Baker Petrolite to form the ProductionQuest business unit. This group also will provide intelligent production systems that incorporate completion, pumping and chemical technology from other Baker Hughes divisions.

Investing in the Future By 2006, energy demand was slightly below the world’s productive capacity, largely because of rapidly growing economies in China and India. Oil prices above $60/barrel spurred investment and increased demand for oilfield products and services. Baker Hughes revenues in 2006 topped $9 billion, and operating profits reached record levels. At the end of a year 88

of rapid growth, the company had nearly 35,000 employees. Capital investment of $922 million in 2006 was nearly double the spending in 2005, and Baker Hughes invested $339 million in research and engineering during the year. As Baker Hughes completes its first century, the company continues to invest in its global infrastructure, with new facilities planned in every region. A new regional headquarters campus is under construction in Dubai, and a new Center for Technology Innovation is being built in Houston. Baker Hughes continues to invest in recruiting, developing and retaining a diverse global workforce. Baker Hughes also has made a commitment to extensive technical, HS&E, supervisory and management training programs, which are conducted in classrooms and via online learning. The company’s succession planning, personal development and performance management processes enable qualified and motivated employees to make their careers at Baker Hughes. In its first hundred years, Baker Hughes became an industry leader in technology and customer service because of the creativity, dedication and hard work of its people. In the years ahead, Baker Hughes people, working in a High Performance Culture, will continue to make the difference.

Architectural rendering of the Center for Technology Innovation being built on a 14-acre site in northwest Houston

New Dubai regional headquarters, including training, manufacturing and office facility is scheduled to open in 2008.

Year 1998

The World

Energy Industry

Technology

Baker Hughes Milestones

• India and Pakistan test nuclear weapons. • Asian financial market crisis causes recession.

BP drills extended reach well beyond 10 km on Wytch Farm.

INTEQ Drilling Fluids launches PENETREX rate of penetration enhancer.

• Baker Hughes acquires Western Atlas. • Centrilift acquires Oil Dynamics Inc. • Baker Petrolite headquarters opens in Sugar Land.

• Euro becomes the new European currency. • Fear of the Y2K bug • Panama Canal returned to Panama.

• Mergers create Super Majors. • Thunder Horse field discovered in the Gulf of Mexico. • Oil drops to $11/barrel.

Baker Oil Tools completes the first Level 6 multilateral well.

Baker Oil Tools launches Republic Tide and R.C. Baker vessels for gravel packing and fracturing services.

• Concorde supersonic plane crashes near Paris. • Clashes in Northern Ireland with IRA

Houston Technology Center opens as headquarters for INTEQ and Baker Atlas.

• Joe B. Foster named interim Chairman and CEO. • Michael E. Wiley named Chairman and CEO. • Core Values and Keys to Success are adopted.

• World Trade Center and Pentagon attacked on 9/11. • U.S. invades Afghanistan.

• Hughes Christensen introduces the Genesis PDC bit line. • INTEQ fluids group manages the first zero discharge project in the Gulf of Mexico.

Baker Oil Tools launches H.R. Hughes technology vessel.

2002

• U.S. and Russia reach landmark agreement on nuclear weapons. • Terrorist bomb in Bali kills hundreds.

Centrilift installs first subsea ESP system in the North Sea.

• Baker Hughes sells Process Group. • Baker Hughes acquires Apollo Services to create Fluids Environmental Services within INTEQ. • Baker Hughes forms Pipeline Management Group.

2003

U.S. deposes Iraq’s Saddam Hussein.

2004

• Enormous tsunami devastates Asia. • George W. Bush reelected U.S. President.

Walker Ridge trend discovered in the Gulf of Mexico.

• INTEQ introduces new LWD suite. • Centrilift introduces Centurion pump line; Electrospeed II drive; Centinel downhole sensor.

• Chad C. Deaton named Chairman and CEO. • Baker Hughes sells Mining Tools group. • Baker Hughes Drilling Fluids formed as a separate division.

2005

• Pope John Paul II dies, succeeded by Pope Benedict XVI. • London subway terrorist bomb blasts kill 52 commuters.

• Hurricanes Katrina and Rita devastate Gulf Coast, damage energy infrastructure. • Giant gas fields discovered in KG Basin, Bay of Bengal.

• INTEQ introduces AutoTrak X-treme drilling system. • Centrilift introduces MVP pump.

• Baker Hughes organized into Drilling & Evaluation and Production & Completion segments. • Four geographic regions established.

U.S. and India agree to a nuclear pact.

• Oil hits a record high of $78.40/bbl on New York Mercantile Exchange. • Statoil and Norsk Hydro merge. • Jack field discovered in the Gulf of Mexico.

• INTEQ introduces TruTrak landbased directional drilling system. • Baker Petrolite revives Tretolite demulsifier brand. • Centrilift introduces WellLIFT downhole sensor.

• Baker Hughes sells its 30% share of WesternGeco to Schlumberger. • ProductionQuest unit formed to provide production optimization services.

Climate change becomes a leading public policy issue.

Venezuela initiates plans to nationalize its oil fields.

INTEQ drills world record 37,000-ft extended reach well on Sakhalin Island.

Baker Hughes marks its 100th anniversary.

1999

2000

2001

2006

2007

Andy Szescila retires, Rod Clark named BHI President and COO.

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CORE VALUES INTEGRITY We believe integrity is the foundation of our individual and corporate actions that drives an organization of which we are proud.    

We are a responsible corporate citizen committed to the health and safety of people, protection of the environment, and compliance with laws, regulations, and company policies. We are honest, trustworthy, respectful and ethical in our actions. We honor our commitments. We are accountable for our actions, successes and failures.

TEAMWORK We believe teamwork leverages our individual strengths.     

We are committed to common goals. We expect everyone to actively participate on the BHI team. We openly communicate up, down, and across the organization. We value the diversity of our workforce. We willingly share our resources.

PERFORMANCE We believe performance excellence will drive the results that differentiate us from our competitors.      

We focus on what is important. We establish and communicate clear expectations. We relentlessly pursue success. We strive for flawless execution. We work hard, celebrate our successes and learn from our failures. We continuously look for new ways to improve our products, services and processes.

LEARNING We believe a learning environment is the way to achieve the full potential of each individual and the company.   

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We expect development throughout each individual’s career by a combination of individual and company commitment. We learn from sharing past decisions and actions, both good and bad, to continuously improve performance. We improve by benchmarking and adopting best practices.

KEYS TO SUCCESS People contributing at their full potential. Everyone can make a difference.  We understand our priorities and performance goals.  We drive to do our part every day.  We support new ideas and take appropriate risks.  We take action to find and correct problems.  We commend each other on a job well done.

Delivering unmatched value to our customers.  We make it easy for customers to do business with us.  We listen to our customers and understand their needs.  We plan ahead to deliver innovative, cost-effective solutions.  We are dedicated to safe, flawless execution and top quality results.

Being cost efficient in everything we do.  We maintain a competitive cost structure for the long term.  We utilize shared services to control cost for the enterprise.  We seek the best value for Baker Hughes in our relationships with suppliers.  We ruthlessly eliminate waste without compromising safety or quality.

Employing our resources effectively.  We assign our people where they can make the biggest contribution.  We allocate our investments to leverage the best opportunities for Baker Hughes.  We handle company assets as if they were our own.  We manage our balance sheet to enhance return on investment.

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Baker Hughes Incorporated P.O. Box 4740 Houston, Texas 77210-4740 Tel 713.439.8600 Fax 713.439.8280 Baker Atlas INTEQ Hughes Christensen Baker Hughes Drilling Fluids Baker Oil Tools Baker Petrolite Centrilift ProductionQuest

© 2007 Baker Hughes Incorporated. All rights reserved. Printed in U.S.A.

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