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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
BAKER HUGHES INCORPORATED
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0-11.
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
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Slide 1
[Baker Hughes Incorporated logo] [Western Atlas Inc. logo]
...advancing Discovery and Recovery
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SLIDE 2
Forward Looking Statements
This presentation contains "forward-looking" statements within the meanings of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act, as amended. Slides containing forward-looking
statements are indicated by words such as "future", "expected", "opportunity",
"emerging" and "projected". See page 13 of the Joint Proxy Statement/Prospectus
of BHI/WAI describing factors, risks and uncertainties that relate to the
forward-looking statements.
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Slide 3
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
o The Combination
o The Evolving Playing Field
-- Focus on Solutions
-- Changing Players
o Positioned for the Future
o A Timely Investment Opportunity
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Slide 4
[Western Atlas Inc. logo]
A Leader in Discovery
Western Geophysical
[Picture: seismic vessel]
SEISMIC
Acquisition
Processing
Interpretation
Data library
Western Atlas Logging Services
[Picture: wireline logging unit at oil and gas well]
WIRELINE LOGGING
Open hole services
Cased hole services
Borehole geophysics
Petrophysical analysis
E & P Services
[Picture: person at computer]
RESERVOIR CHARACTERIZATION
Basin analysis
Prospect identification
Field development
Integrated reservoir services
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Slide 5
[Baker Hughes Incorporated logo]
A Leader in Recovery
[Picture: measurement-while-drilling tool with person near computers]
DRILLING SYSTEMS
Directional drilling
MWD/LWD
Drilling fluids
Surface logging
[Picture: fluids in a glass testing tube in a laboratory]
CHEMICALS
Oilfield
Industrial
Petrochemical
[Picture: electric submersible pump with three technicians]
ELECTRICAL SUBMERSIBLE PUMPS
Downhole oil/water separation
[Picture: topside of a wellbore construction unit]
INTEGRATED SOLUTIONS
Wellbore construction
Project management
[Picture: Multilateral junction]
COMPLETIONS
Packers
Sand control
Liner hangers
Fishing
[Picture: drill bits on an assembly line]
DRILL BITS
Roller cone
Diamond
Mining
[Picture: oil/water separation equipment]
PROCESS EQUIPMENT
Separation technologies
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Slide 6
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
The Combination
Value of Deal $6.2 billion(1)
including $1.2 billion debt
Structure Stock for stock
Accounting Pooling of interest
Exchange Ratio Varies (2.623 @ $35 share)
Pro Forma Debt/Cap 39%
Ownership 54% BHI shareholders(1)
46% WAI shareholders(1)
Management Max L. Lukens, Chairman and CEO
John Russell, President
Board of Directors 16, (12 BHI + 4 WAI)
(1) Assuming a 20-day BHI average price of $35/share
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Slide 7
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
The Evolving Playing Field
Macroenvironment
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Slide 8
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
Oil Prices 1987 - 1997
Daily Close of the Near Month WTI Contract (number of occurrences)
[Bar Graph:
0 to 700 on the y-axis
$0 to $28+ on the x-axis
The following are representative data points at $1 intervals starting at $12 on
the x-axis and adjusted for MG liquidation (11/93 through 4/94).
These bars are red and bracketed with the label "5%":
Dollars Number of Occurrences
12 3
13 25
14 32
15 70
These bars are green and bracketed with the label "87%":
Dollars Number of Occurrences
16 102
17 328
18 452
19 463
20 422
21 282
22 142
23 65
The remaining bars are yellow and are not bracketed:
Dollars Number of Occurrences
24 52
25 37
26 22
27 14
28+ 77
]
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Slide 9
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
The Evolving Playing Field
Focus on Solutions
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Slide 10
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
Cumulative Cash Flow
Project Economics
Investment Cycle:
Exploration & Discovery
Appraisal & Development
Production & Intervention
Abandonment
[a line graph showing the investment cycle of an oil and gas project with a
y-axis reflecting investment and return on investment on a cumulative basis and
an x-axis reflecting time. The graph shows (i) negative cumulative investment
during the Exploration and Discovery stage, (ii) increasingly negative
cumulative investment during the Appraisal and Development stage, (iii)
decreasingly negative and then positive cumulative investment and return on
investment during the Production and Intervention stage and (iv) positive
cumulative investment and return on investment during the Abandonment stage,
becoming decreasingly positive.]
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Slide 11
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
The Producer's Challenge
Accelerate and Maximize Cash Flow
[a line graph showing the same graph as in slide 10 with an overlay line graph
showing decreasing cash investments, increasing returns and a reduced amount of
time to achieve returns resulting from the ability to lower finding costs, lower
capital costs, accelerate and maximize production, lower operating and
intervention costs and increase ultimate recovery]
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Slide 12
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
Focus on Life Cycle
[A graphic of a circle made up of two arrows reflecting the interrelationship of
"Interpretation" and "Integration"]
INFORMATION
Seismic
MWD
LWD
Wireline
Production history
Real-time monitoring
EXECUTION
Wellbore construction
Well placement
Intelligent completions
Downhold oil-water separation
Downhole Factory - TM
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Slide 13
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
Focus on Recovery
[Picture: a three-dimensional graphic showing the substrata of an oil and gas
reservoir with well interpretation graphics]
Reservoir modeling
- -subsurface information, reservoir characterization & 4D measurements
[Picture: a drawing of a down-hole drilling tool inside of an oil and gas well
bore]
Well construction & placement
- -extended reach and horizontal drilling, geo-steering and multilateral
technology
[Picture: a person working on an electronic instrumentation package]
Production management
- -intelligent completions, downhole production measurement & control systems
and reservoir monitoring
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Slide 14
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
Focus on Total Cost
Improved information and execution reduces total costs by reducing spending on
infrastructure
Information & Downhole Technology
Infrastructure
[Graphic: a pie chart showing that as information and down-hole technology
increase, spending on infrastructure decreases]
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Slide 15
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
The Evolving Playing Field
Changing Players
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Slide 16
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
Pre-Consolidation
[Bar graph: y-axis from $0-10 billion in oilfield revenues, the x-axis showing
the ticker symbols of various oilfield service companies. The data points are as
follows:
Oilfield Revenues Oilfield Revenues
(in billions) for Strategic Oilfield (in billions) for Rigs & E&C
SLB $6.9 $1.4
HAL $4.2 $2.1
BHI $4.1
DI $2.6
WAI $2.0
SII $1.7
BJS $1.6
EVI $1.1
WII $1.1
CAM $1.0
]
Source: 1997 revenues based on public filings
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Slide 17
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
The New Landscape
[Bar graph: y-axis from $0-10 billion in oilfield revenues, the x-axis showing
the ticker symbols of various oilfield service companies. The data points are as
follows:
Oilfield Revenue Oilfield Revenue
(in billions) for Strategic Oilfield (in billions) for Rigs & E&C
SLB $7.9 $1.4
HAL $6.8 $2.1
BHI $6.1
DI "Feb" over x-axis label
WAI "May" over x-axis label
SII $1.7
BJS $1.6
EVI $2.1
WII "Mar" over x-axis label
CAM "Jun" over x-axis label
]
Source: 1997 revenues based on public filings
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Slide 18
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
The Big Three
[Bar graph: y-axis from $0-18 billion in revenue, the x-axis showing the ticker
symbols of various oilfield service companies. The data points are as follows:
X=Non-oilfield Revenue
Y=Rigs/E&C Revenue
Z=Strategic Oilfield Revenue
HAL [Haliburton Company logo on bar]
X=$7.4
Y=$2.1
Z=$6.8 (42%)
SLB [Schlumberger Limited logo on bar]
X=$2.9
Y=$1.4
Z=$7.9 (64%)
BHI [Baker Hughes Incorporated logo on bar]
X=$0.5
Y=$0.0
Z=$6.1 (92%)
]
Source: 1997 revenues based on public filings
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Slide 19
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
Industry Leadership
[Baker Hughes [Schlumberger [Halliburton
Incorporated logo] Limited logo] Company logo]
Seismic 1 2
Wireline &
Testing 2 1 3
Drilling
Systems 1 2 3
Drill Bits 1 4 3
Drilling
Fluids 3 4 2
Sand Control 1 3 2
Completions 1 4 2
ESP's 1 2
Chemicals 1
Pressure
Pumping 2 1
Coiled Tubing 1 2
Rigs 4
E&C 1
Proforma for BHI/WAI, SLB/CAM, HAL/DI
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Slide 20
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
Positioned for the Future
Solving the Producer's Challenge
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Slide 21
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
Positioned for the Future
Geographic leverage and cross selling
[Relief map of the world with rectangle outlined boxes drawn around the
following regions: northern Alaska, southern Mexico and north and middle Central
America, eastern South America, western Africa, Egypt, the Black Sea area,
southeast Asia, including parts of China, Indonesia, Thailand, Myanmar and Papua
New Guinea. Stars, representing Western Atlas Logging Services Geoscience
Centers are on the following cities: Houston, Caracas, Aberdeen, London,
Stavanger, Den Helder, Bahrain, Kuala Lampur and Perth]
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Slide 22
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
Positioned for the Future
[Picture of seismic interpretation graphic]
[Picture of integrated interpretation graphic]
Service integration
- -seismic
- -wireline logging
- -logging while drilling
- -wellbore positioning
- -completions
- -production logging
[Reproduction of graphic from slide 11]
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Slide 23
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
Positioned for the Future
[a graphic "ying/yang" circle with the left half containing the Western Atlas
Inc. logo and the words, "Is it there?" and the right half containing the Baker
Hughes Incorporated logo and the words, "Getting it out!"]
E&P/Solutions synergies
- -risk management
- -project management
- -cross selling
- -geographic leverage
[Reproduction of graphic from slide 11]
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Slide 24
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
Positioned for the Future
Product development
- -Advanced LWD tools
- -Seismic while drilling
- -Information management
[Drawing: logging-while-drilling tool cutting through the substrata of earth]
[Reproduction of graphic from slide 11]
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Slide 25
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
Positioned for the Future
Integrated technologies
- -Reservoir management
- -Downhole Factory-TM
[picture of a 2-D seismic graph]
Pre-1980's
[picture of a 3-D seismic graph]
1980's & 90's
[picture of a 4-D time lapse reservoir graph]
emerging
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Slide 26
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
The Downhole Factory--TM
[A drawing of the substrata of the earth with an oil and gas multilateral well
bore slicing through it with three inset pictures: (1) a multilateral
completion, (2) an intelligent completion tool and (3) downhole oil/water
separation equipment. Each of these inset pictures shows equipment inside the
oil and gas well bore hole.]
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Slide 27
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
Combination Benefits
[A pie chart with 4 wedges: corporate - $55 million, field consolidation - $45
million, pull through - $15 million and D&A reduction - $20 million]
Corporate
- -interest expense and tax rate
- -buying power (insurance, travel, etc.)
- -reduction in corporate staff
Pull through
- -geographic leveraging
- -cross selling
- -integrated solutions penetration
- -early involvement
Field consolidation
- -combine redundant facilities
- -cost avoidance
- -emerging markets
D&A reduction
- -tangibles
- -intangibles
$135 million Expected Year 1 (Pre Tax Earnings)
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Slide 28
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
Closing Thoughts
The Business Opportunity
Market leadership in the key technologies
Reservoir centered strategy
Integration over life of field
Focus on the fastest growing segments with the highest return potential
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Slide 29
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
The Investment Opportunity
Multiple Expansion
1999
Earnings Cash Flow
S&P Industrials 21.5x 13.3x
Schlumberger/Camco 20.1x 11.9x
Halliburton/Dresser 15.5x 10.0x
Baker Hughes/Western Atlas 14.0x 8.5x
Based on First Call(TM) estimates and closing prices on 9 July, 1998; no Baker
Hughes endorsement intended
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Slide 30
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
... advancing Discovery and Recovery
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Slide 31
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
Financial Strength
Twelve Months Ending 31 March, 1998
BHI WAI BHI/WAI
Revenue $ 4,299 $ 1,769 $ 6,068
EBITDA $ 736 $ 636 $ 1,372
EBITDA Margin 17.1% 36.0% 22.6%
EBIT $ 529 $ 233 $ 762
EBIT Margin 12.3% 13.2% 12.6%
March 31, 1998
Debt $ 1,182 $ 1,153(1) $ 2,335
Equity $ 2,692 $ 924 $ 3,616
Debt/Cap Ratio 0.31 0.55 0.39
(1) Pro forma including debt from 3D and Wedge Acquisitions
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Slide 32
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
Investing for Growth
Sources: Baker Hughes; Chase; EIA; Salomon Brothers
[a bar graph with two line graphs overlayed. All three graphs have years as the
x-axis from 1975 until 2005.
The bar graph represents CAPEX in billions of 1996 dollars as follows:
Year Billions of 1996 Dollars
1975 60.9
1976 60.5
1977 71.0
1978 67.7
1979 74.4
1980 83.6
1981 94.3
1982 93.2
1983 67.2
1984 65.8
1985 65.4
1986 38.2
1987 38.6
1988 48.6
1989 46.2
1990 55.1
1991 56.1
1992 56.5
1993 55.8
1994 57.5
1995 60.6
1996 70.0
1997 84.5
1998 89.6
One line graph represents RAC Crude in 1996 dollars as follows:
Year 1996 Dollars
1975 17.05
1976 17.57
1977 17.39
1978 16.85
1979 21.16
1980 32.21
1981 43.40
1982 37.40
1983 33.80
1984 32.76
1985 30.21
1986 15.91
1987 19.18
1988 15.29
1989 18.33
1990 22.06
1991 17.84
1992 17.04
1993 16.05
1994 13.79
1995 15.00
1996 18.20
1997 18.20
1998 15.50
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The other line graph represents Worldwide Oil and Gas Demand (in thousands of
barrel equivalents per day)
Year mboe/d
1975 64
1976 67
1977 70
1978 72
1979 74
1980 72
1981 70
1982 68
1983 67
1984 68
1985 70
1986 71
1987 74
1988 75
1989 78
1990 79
1991 78
1992 79
1993 80
1994 82
1995 83
1996 87
1997 89
1998 90
and projected Worldwide Oil and Gas Demand (in thousands of barrels equivalent
per day) at 2.0% and 2.5%
mboe/d mboe/d
Year (2.0%) (2.5%)
1999 92 92
2000 93 94
2001 95 96
2002 97 99
2003 99 101
2004 101 104
2005 103 106
]
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Slide 33
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
Depletion Rates
[six overlayed graphs, each in a different color, of depletion rates of top 11
GoM shelf gas producers with an x-axis representing January 1989 through
December 1995 and a y-axis of 0 to 200 Bcf/mo. Representative data points for
each January in the periods presented and for the end of the periods are as
follows:
Color Date Bcf/mo
Blue Pre-91
Jan-89 206
Jan-90 212
Jan-91 194
Jan-92 140
Jan-93 113
Jan-94 94
Jan-95 75
Dec-95 57
yellow 1991
Jan-91 202
Jan-92 189
Jan-93 145
Jan-94 116
Jan-95 93
Dec-95 71
light orange 1992
Jan-92 202
Jan-93 172
Jan-94 134
Jan-95 106
Dec-95 83
orange 1993
Jan-93 176
Jan-94 188
Jan-95 142
Dec-95 105
light red 1994
Jan-94 191
Jan-95 195
Dec-95 131
red 1995
Jan-95 197
Dec-95 179
]
Source: Chevron
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[six overlayed graphs, each in a different color, of depletion rates of top 11
GoM shelf oil producers with an x-axis representing January 1989 through
December 1995 and a y-axis of 0 to 20 Mbo/mo. Representative data points
for each January in the periods presented and for the end of the periods are as
follows:
Color Date Mbo/mo
Blue Pre-91
Jan-89 17.2
Jan-90 15.4
Jan-91 14.3
Jan-92 11.1
Jan-93 8.8
Jan-94 7.5
Jan-95 6.1
Dec-95 4.7
yellow 1991
Jan-91 15.0
Jan-92 14.5
Jan-93 10.9
Jan-94 9.1
Jan-95 7.4
Dec-95 5.7
light orange 1992
Jan-92 14.6
Jan-93 13.4
Jan-94 10.8
Jan-95 8.6
Dec-95 6.6
orange 1993
Jan-93 13.8
Jan-94 13.9
Jan-95 10.6
Dec-95 8.0
light red 1994
Jan-94 14.2
Jan-95 13.6
Dec-95 9.9
red 1995
Jan-95 13.8
Dec-95 14.0
]
Source: Chevron
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Slide 34
[Western Atlas Inc. logo] [Baker Hughes Incorporated logo]
... advancing Discovery and Recovery