Baker Hughes 2009 Annual Report Download - page 79

2009 Form 10-K 5
Electrical Submersible Pump Systems. ESPs lift large
quantities of oil or oil and water from wells that do not flow
under their own pressure. These “artificial lift” systems consist
of a centrifugal pump and electric motor installed in the well-
bore, armored electric cabling to provide power to the down-
hole motor and a variable speed controller at the surface.
Baker Hughes designs, manufactures, markets and installs all
the components of ESPs and also offers modeling software to
size ESPs and simulate operating performance. ESPs may be
used in both onshore and offshore wells. The range of appro-
priate application of ESPs is expanding as technology and reli-
ability enhancements have improved ESPs’ performance in
harsher environments and marginal reservoirs.
Progressing Cavity Pump Systems. PCPs are a form of
artificial lift comprised of a downhole progressing cavity pump
powered by either a downhole electric motor or a rod turned
by a motor on the surface. PCPs are preferred when the fluid
to be lifted is viscous or when the volume is significantly less
than could be economically lifted with ESPs.
Permanent Monitoring and Chemical Injection Systems
Permanent Monitoring Systems. Permanent downhole
gauges are used in oil and gas wells to measure temperature,
pressure, flow and other parameters in order to monitor well
production as well as to confirm the integrity of the comple-
tion and production equipment in the well. We are a leading
provider of electronic gauges including the engineering, appli-
cation and field services necessary to complete an installation
of a permanent monitoring system. In addition, we provide
chemical injection line installation and services for treating
wells for corrosion, paraffin, scale and other well performance
problems. We also provide fiber optic based permanent down-
hole gauge technology for measuring pressure, temperature
and distributed temperature. The benefits of fiber optic sens-
ing include reliability, high temperature properties and the abil-
ity to obtain distributed readings.
Chemical Automation Systems. Chemical automation
systems remotely monitor chemical tank levels that are resi-
dent in producing field locations for well treatment or produc-
tion stimulation as well as continuously monitor and control
chemicals being injected in individual wells. By using these sys-
tems, a producer can ensure proper chemical injection through
real-time monitoring and can also remotely modify the injec-
tion parameters to ensure optimized production.
Integrated Operations and Project Management
Integrated Operations and Project Management. We
offer integrated operations and project management services
to our customers. Integrated operations and project manage-
ment is the process of coordinating the delivery of multiple
product lines and services to a specific customer or project
normally under a single contract or agreement, including the
coordination of third-party products and services in addition
to those which we may provide. Under a project management
contract, we may be asked to assume responsibility for certain
risks related to a project. These assumed risks may include the
performance of our products and services, performance of
products and services of third-party providers, or completion of
the project in accordance with specified technical parameters
or in a specified timeframe.
PENDING MERGER WITH BJ SERVICES
On August 30, 2009, the Company and its subsidiary and
BJ Services Company (“BJ Services”) entered into a merger
agreement (the “Merger Agreement”) pursuant to which the
Company will acquire 100% of the outstanding common
stock of BJ Services in exchange for newly issued shares of the
Company’s common stock and cash. BJ Services is a leading
provider of pressure pumping and oilfield services. The Merger
Agreement and the merger have been approved by the Board
of Directors of both the Company and BJ Services. Consum-
mation of the merger is subject to the approval of the stock-
holders of the Company and BJ Services’ stockholders at
special meetings scheduled on March 19, 2010 subject to
adjournment or postponement, regulatory approvals, and the
satisfaction or waiver of various other conditions as more fully
described in the Merger Agreement.
Subject to receipt of all required approvals, it is anticipated
that closing of the merger will occur in March 2010. Under
the terms of the Merger Agreement, each share of BJ Services
common stock will be converted into the right to receive
0.40035 shares of the Company’s common stock and $2.69
in cash. Baker Hughes has estimated the total consideration
expected to be issued and paid in the merger to be approxi-
mately $6.4 billion, consisting of approximately $0.8 billion
to be paid in cash and approximately $5.6 billion to be paid
through the issuance of approximately 118 million shares of
Baker Hughes common stock valued at the February 11, 2010
closing share price of $46.68 per share. The value of the
merger consideration will fluctuate based upon changes in the
price of shares of Baker Hughes common stock and the num-
ber of BJ Services common shares and options outstanding at
the closing date.
MARKETING, COMPETITION AND ECONOMIC CONDITIONS
We market our products and services on a product line
basis primarily through our own sales organizations, although
certain of our products and services are marketed through
independent distributors, commercial agents, licensees or sales
representatives. Over the past several years, we have signifi-
cantly reduced the number of commercial agents that we use
to conduct our business. In the markets in which we formerly
utilized commercial agents, we have established our own mar-
keting operations and are continuing to build direct relation-
ships with our customers. We ordinarily provide technical and
advisory services to assist in our customers’ use of our prod-
ucts and services. Stock points and service centers for our
products and services are located in areas of drilling and pro-
duction activity throughout the world.
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