Baker Hughes 2010 Annual Report Download - page 85

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oil companies. No single customer accounts for more than
10% of our business. In North America, most work is con-
tracted and performed on a well-by-well basis. Outside North
America, most work is contracted on a project-by-project basis
or for an extended period of time, typically two to four years.
Most contracts cover our pricing of the products and services,
but do not necessarily establish an obligation to use our prod-
ucts and services.
Our primary competitors include the major diversified
oil service companies such as Schlumberger, Halliburton
and Weatherford, where the breadth of service capabilities
as well as competitive position of each product line are the
keys to differentiation in the market. We also compete with
other companies who may participate in only a few product
lines, for example, National Oilwell Varco, Champion Technol-
ogies, Inc., Nalco Holding Company, Newpark Resources, Inc.,
and Frac Tech Services, LLC.
Our products and services are sold in highly competitive
markets, and revenues and earnings can be affected by
changes in competitive prices, fluctuations in the level of
drilling, workover and completion activity in major markets,
general economic conditions, foreign currency exchange fluc-
tuations and governmental regulations. We believe that the
principal competitive factors in our industries are product and
service quality, availability and reliability, health, safety and
environmental standards, technical proficiency and price.
We strive to negotiate the terms of our customer con-
tracts consistent with what we consider to be best practices.
The general industry practice is for oilfield service providers,
like us, to be responsible for their own products and services
and for our customers to retain liability for drilling and related
operations. Consistent with this practice, we generally take
responsibility for our own people and property and our cus-
tomers, such as the operator of a well, take responsibility for
their own people, property and all liabilities related to the well
and subsurface operations, regardless of either party’s negli-
gence. In general, any material limitations on indemnifica-
tions to us from our customers in support of this allocation
of responsibility arise only by applicable statutes. Certain states
such as Texas, Louisiana, Wyoming, and New Mexico have
enacted oil and gas specific statutes that void any indemnity
agreement that attempts to relieve a party from liability result-
ing from its own negligence (“anti-indemnity statutes”). These
statutes can void the allocation of liability agreed to in a con-
tract; however, both the Texas and Louisiana anti-indemnity
statutes include important exclusions. The Louisiana statute
does not apply to property damage, and the Texas statute
allows mutual indemnity agreements that are supported by
insurance and has exclusions, which include, among other
things, loss or liability for property damage that results from
pollution and the cost of control of a wild well.
Because both Baker Hughes and our customers generally
prefer to contract on the basis as we mutually agree, we
negotiate with our customers in the U.S. to include a choice
of law provision adopting the law of a state that does not
have an anti-indemnity statute. When this does not occur,
we will generally use Texas law. With the exclusions contained
in the Texas anti-indemnity statute, we are usually able to
structure the contract such that the limitation on the indemni-
fication obligations of the customer is limited and should not
have a material impact on the terms of the contract.
State law, laws or public policy in countries outside the
U.S., or the negotiated terms of our agreement with the cus-
tomer may also limit the customer’s indemnity obligations in
the event of the gross negligence or willful misconduct of a
Baker Hughes employee. The Company and the customer may
also agree to other limitations on the customer’s indemnity
obligations in the contract.
The Company maintains a commercial general liability
insurance policy program that covers against certain operating
hazards, including product liability claims and personal injury
claims, as well as certain limited environmental pollution
claims for damage to a third party or its property arising out
of contact with pollution for which the Company is liable, but
clean up and well control costs are not covered by such pro-
gram. All of the insurance policies purchased by the Company
are subject to self-insured retention amounts for which we are
responsible for payment, specific terms, conditions, limitations
and exclusions. There can be no assurance that the nature
and amount of Company insurance will be sufficient to fully
indemnify us against liabilities related to our business.
RESEARCH AND DEVELOPMENT; PATENTS
Our products and technology organization engages in
research and development activities directed primarily toward
the improvement of existing products and services, the design
of specialized products to meet specific customer needs and
the development of new products, processes and services. Our
primary technology centers are located in the U.S. (Blacksburg,
Virginia; Claremore, Oklahoma; several in Houston, Texas and
surrounding areas); Germany (Celle), Brazil (Rio de Janeiro),
Russia (Novosibirsk), and Saudi Arabia (Dhahran). For informa-
tion regarding the amounts of research and development
expense in each of the three years in the period ended Decem-
ber 31, 2010, see Note 1 of the Notes to Consolidated Finan-
cial Statements in Item 8 herein.
We have followed a policy of seeking patent and trade-
mark protection in numerous countries and regions through-
out the world for products and methods that appear to have
commercial significance. We believe our patents and trade-
marks to be adequate for the conduct of our business, and
aggressively pursue protection of our patents against patent
infringement worldwide. No single patent or trademark is
considered to be critical to our business.