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Refracks Focus of Halliburton, BlackRock Venture

Halliburton Co., which performs more onshore well stimulations than any other operator in North America, is carving out a niche in the refracturing market in a partnership with private equity giant BlackRock.

The oilfield services giant and BlackRock have entered into a memorandum of understanding to specifically fund up to $500 million in refracturing (refracking) projects over the next three years.

"This arrangement allows Halliburton to focus on candidate selection, execution and generating best in class returns, while allowing BlackRock to pursue innovative opportunities with their clients," Halliburton President Jeff Miller said during a second quarter conference call Monday.

"What we see is this is a foundation for growth and [it] demonstrates our belief that the market grows," Miller told analysts. "And it's clear that the technology enables returns. It also lays the groundwork for us to move quickly at scale." The three-year window "provides a lot of flexibility for us to act quickly."

CEO Dave Lesar said Halliburton was not targeting "marginal assets" for refracks. "We're targeting good sets of assets that for whatever reasons are not being able to get accessed by our customer base today."

Halliburton is looking for revenues and margins, while BlackRock is "looking for an income tail that goes out a number of years," Lesar said. "So in my view, it sort of dovetails together very nicely...Yes, we believe in our technology, we believe in the refrack market going forward, and we believe that we can make a difference. And so we would leverage our balance sheet to ramp that part of the business up.

"But what BlackRock gives us is an ability to lever beyond that, look at additional ways of doing business with our customers, different business models, push beyond where we have been today or where we might be going in the future."

Discussions with "specific customers in specific circumstances" are ongoing, but the details remain confidential about how many companies Halliburton initially is targeting.

"We've been involved in refracture operations for decades and have executed at least twice as many as any other service provider," Miller said. "Although relatively small today, we believe this market has significant potential in the coming years. So why are customers interested? Early horizontal wells were arguably under-stimulated as stages per well are up more than 30% and proppant per well is up more than double since 2010."

What's changed, he said, are two key components of technology to drill and complete wells.

"The first is our diversion chemistry that more effectively stimulates wells, and then second is our diagnostic technology to validate those results," Miller said. Although the market is "relatively small" today, "we see significant runway for refrack in the future. There's an opportunity to address the needs of operators to increase their production and expected ultimate recovery from the tens of thousands of unconventional wells drilled over the last several years. And we anticipate that customers will begin to dedicate a percentage of their annual spend to refracturing operations."

Halliburton's unconventional exploration customers "are highly adaptable," Miller said. "They are actively seeking the surface efficiencies, downhole technologies and business arrangements that will make the economics work. When the recovery does come, it's our belief that North America will respond the quickest and offer the greatest upside. And when that happens, we are confident that Halliburton will be the best positioned to outperform in the recovery phase of the cycle."

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