Businessmodel of Baker Hughes

Customer Segments

Baker Hughes provides a portfolio of oilfield services to a range of industrial customers, primarily those operating within the oil and gas sector. The Company’s customers can be organised broadly into two categories:

• Oil and Gas, including large integrated major and super-major oil and natural gas companies, US and international independent oil and natural gas companies and national or state-owned oil companies; and
• Downstream Services, including downstream chemicals companies, pipeline operators and service providers, and other oil and gas service providers. According to its annual report, no single customer accounts for more than 10% of the Company’s business.

Baker Hughes’s principal market is its native US. The Company, however, also provides services across the Americas, Europe, Asia Pacific, the Middle East, and Africa.

Value Propositions

Baker Hughes provides value to its customers in the following ways:

• Its industry standing and reputation, with the Company established as a leading provider of oilfield services, having a proven track record for proving high-quality, reliable and efficient services to a number of large commercial customers;
• Its international reach, with the Company operating facilities and offices across the Americas, Asia Pacific, Europe, Africa, and the Middle East, as well as serving an extensive network of customers in the US;
• Its use of technology, with the Company employing state-of-the-art technologies and solutions to provide its customers with cutting edge services;
• Its commitment to innovation, with the Company committing a significant portion of its funds each year to the development of new and innovative solutions and processes, ensuring that its service remain at the cutting edge of its industry; and
• Its industry expertise and experience, with the Company employing specialist technical staff across its operating segments, led by a team of experienced industry executives. ### Channels

Baker Hughes operates a website at www.bakerhughes.com, through which it provides information on its various services, solutions, and operating locations. The Company, however, does not operate an online sales channel, nor does it provide an online customer portal.

Baker Hughes market its products and services across its four geographic segments on a product line basis, primarily through its own in-house sales organisations. These sales personnel operate out of the Company’s network of offices across North America, Latin America, Europe, Africa, the Middle East, and Asia Pacific, including in Denver, Houston, Moscow, Cairo, and Abu Dhabi.

Baker Hughes also provides services through its network of manufacturing plants, equipment assembly facilities, maintenance and overhaul facilities, grinding plants, drilling fluids and chemical processing centres, and primary research and technology centres. It also provides technical and advisory services to customers through specialist teams.

Customer Relationships

Baker Hughes does not provide products or services to its customers on a self-service basis. Instead, the Company consults directly with its customers through its various sales teams. The Company’s sales personnel provide tailored services that suit the individual needs and circumstances of each client, agreeing unique contracts with each customer. While the Company may have contracts with customers that include multiple well projects and that may extend over a period ranging from two to four years, its services and products are typically provided on a well-by-well basis.

Baker Hughes provides ongoing support and technical services to its customers, with large clients having their own dedicated account management teams. Baker Hughes provides contact details for its various offices and departments on its website, with prospective and existing clients able to contact the Company directly in order to receive personalised assistance. Additionally, Baker Hughes provides a range of online support resources, including technical papers, case histories, brochures, and data sheets, which can be accessed independently.

Alternatively, Baker Hughes operates a number of social media accounts – including with Facebook, Twitter, LinkedIn, Google+, and YouTube – through which customers are able to interact directly with the Company.

Key Activities

Baker Hughes is engaged in the oilfield services industry. The Company supplies oilfield services, products, technology and systems used in the oil and natural gas industry across the Americas, Europe, Asia Pacific, Africa, and the Middle East.

The Company additionally provides industrial products and services to customers across the downstream chemicals, pipeline services, and processing markets, through its Industrial Services segment. Baker Hughes’s other segments are organised by geographic regions, including North America; Latin America; Europe, Africa, and Russian Caspian; and Middle East and Asia Pacific. Baker Hughes’s oilfield products and services are organised into two categories, Drilling and Evaluation, and Completion and Production.

Key Partners

Baker Hughes works closely with a range of companies and organisations in order to provide reliable and efficient services to its customers. These partners include:

• Supplier and Vendor Partners, comprising suppliers of materials, tools, services, and technologies that are utilised across the Company’s various operating segments, as well as companies to which certain non-technical functions can be outsourced;
• Joint Venture Partners, comprising various oil and gas operators and oilfield service providers, with which the Company collaborates on projects and services through mutually owned entities;
• Oilfield Development Partners, comprising a range of oil and gas companies with which the Company jointly develops oil and gas fields for production; and
• Strategic and Alliance Partners, comprising a range of companies across multiple sectors with which the Company shares certain resources and collaborates on joint projects. Baker Hughes has launched number of partnerships in recent years. This includes a partnership with Aker Solutions to cooperate on early-phase studies, a tie-up with Tier 1 Energy Solutions to develop various technical solutions, and a deal with Y&V Group to participate in a drilling project in Venezuela.

Key Resources

Baker Hughes’s key resources are its intellectual properties, its supply chain, its various industrial facilities – including manufacturing and grinding plants, its drilling equipment and tools, its distribution infrastructure, its sales channels, its IT and communications infrastructure, its partnerships, and its personnel.

Baker Hughes utilises a number of intellectual properties and proprietary technologies in its solutions. The Company protects these properties through patent and trade secret laws. Searches of records published by the US Patent and Trademark Office identified numerous patent applications filed in the name of Baker Hughes, including applications entitled ‘System and method for leg retention on hybrid bits’, ‘Fluid diversion through selective fracture extension’ and ‘System and method for leg retention on hybrid bits’.

Baker Hughes also owns and or leases a number of properties that are key to its operations. This primarily includes a network of manufacturing plants, equipment assembly facilities, maintenance and overhaul facilities, grinding plants, drilling fluids and chemical processing centres, and primary research and technology centres.

Cost Structure

Baker Hughes incurs costs in relation to the development of its technologies and solutions, the procurement of equipment and materials, the operation of its various industrial and distribution facilities, the operation of its sales channels, the maintenance of its IT and communications infrastructure, the implementation of marketing campaigns, the management of its partnerships, and the retention of its personnel.

In 2015 Baker Hughes recorded annual cost of revenue in the mount of $14.50 billion. The Company also accrued research and engineering costs totalling $483 million, and market, general, and administrative expenses in the amount of $1.17 billion.

Revenue Streams

Baker Hughes generates revenue through the provision of various oilfield products and services to major, national, and independent oil and natural gas companies worldwide. The Company also provides a range of industrial services to the downstream chemicals, processing, and pipeline markets.

In 2015 Baker Hughes generated revenue of $15.74 billion, a decrease of $8.81 billion, or 36%, compared to 2014. The Company attributed this decrease in revenue to a general decline in activity, and price deterioration experienced across all operating segments. The Company’s largest revenue generator is its North America segment, which alone generated revenue for the year of $6.01 billion. The majority of the Company’s remaining revenue was generated by its Europe, Africa, and Russian Caspian, and Middle East and Asia Pacific segments.