BJ Services is on a roll. "They did far better than some of their competitors during the downturn. They did a good job of consolidating...to put themselves in a better position this cycle than they were last cycle," said Gary Russell of Frost Securities.
The company's success has been nurtured through an opportunistic acquisition strategy implemented by Chairman, President and Chief Executive Officer Bill Stewart and his management team, buying companies at bargain prices during industry downturns, analysts say. That strategy left BJ in a strong position with a clear vision of its future and its place in the industry.
Hart's E&P recently had an opportunity to sit down with Stewart to discuss his thoughts about the company, its management philosophies and the prospects for the industry.

Hart's E&P: What is your management strategy?
Stewart: Our strategy is embodied in our mission statement. It includes values like serving the customers' needs, attracting and retaining the best employees and doing the things that accomplish that objective. It addresses values like being committed to operating our business as a good neighbor; charity and care for the environment are important to us. It addresses integrity and honesty, which we think are foremost in managing any business. And the idea of continually improving - I think if there's one of these values that has driven BJ's performance, it's that. We have really become an excellent company through continual improvement, and that was not the case 15 years ago.

Hart's E&P: When you arrived at BJ 15 years ago, was there any such management philosophy?
Stewart: The company 15 years ago was a much smaller company than it is today. It didn't really have performance standards. It was a company that didn't communicate effectively with its personnel. Expectations were rather modest. So we took a company that had inferior performance and did the things necessary to make it a great company. And that's not easy. You have to work with all your people, set expectations, do a lot of training. You have to lead by example.

Hart's E&P: Can you give us some specific examples of how far BJ has come over the years?
Stewart: Safety is a good example. Fifteen years ago, our safety record was the worst in the industry. Today it's probably the best. Fifteen years ago, when we did major frac jobs for our customers, it was difficult to complete those jobs effectively and efficiently. Today there's no question we'll do the best work in the oil field.

Hart's E&P: When referring to financial performance, Wall Street analysts often point to BJ Services as a top performer. What factors do you credit for this?
Stewart: Our focus is on generating superior earnings growth. When we began as a public company in 1990, we were a relatively small company. We generated about US $350 million in revenue. The industry wasn't in a recession, but there wasn't a robust and active market at that time. We understood that in order to be a great company and to generate the kind of returns our stockholders expect, we needed to be bigger. Getting bigger at that point in time could be accomplished by organic growth, but the most significant growth we could achieve was through acquisition.
By determining the right time to pursue significant acquisitions, we were able to build the company to what it is today. We acquired The Western Co. in 1995 and Nowsco Well Services in 1996. In 1999, we acquired Fracmaster after they were put into bankruptcy. We approached each of those acquisitions with an open mind, and somewhat different than what others might have done. As we combined, we tried to determine best practices between the companies and adopt those strengths. We refer to that as "the best of the best."
Hart's E&P: Can you give us some examples of practices you've adopted from your acquisition targets?
Stewart: Western Co. was a major company in the United States, whereas BJ was not quite as big. So we adopted much of Western's sales and operating strengths in the United States as we combined the two companies. BJ's international infrastructure and engineering expertise were more comprehensive, and we've continued with BJ's system and practices.
Nowsco was the premier coil tubing company and the No. 1 pumping service company in Canada, and BJ was not in that market. Our challenge with Nowsco was to assure it was managed in a way that it continued to be No. 1. We have accomplished that.
The Fracmaster acquisition bought us a foothold position in Russia at a point in time when Russia was not a desirable place to be. We've brought that up to be a nice business for us today, making good money and getting paid promptly.

Hart's E&P: You've had a number of acquisitions, haven't you?
Stewart: We've had 14 in total. If you look at our history of acquisitions, we've done them differently than most everyone in the industry. All of our acquisitions have been focused on one service line - pressure-pumping services. This focus, I believe, is one of the strong attributes of the company.
There was a time when that strategy may have been questioned, and that was when there was a lot of talk in the industry about integrated services. Some thought you had to have everything from cradle to grave in order to have a successful company, and that's what drove a number of acquisitions by other companies. The assumption was that the customer would rely on the service company to do a lot of things that are core to the customers' success. We didn't believe that was a successful strategy for BJ. There are only a few places where integrated services are done today, and through alliances with other service companies BJ can participate in these markets.

Hart's E&P: Do you intend to maintain your focus on pumping services?
Stewart: Yes, and we will continue to evaluate synergistic opportunities and technologies. Today there are fewer pumping service companies, but there are a couple of acquisition opportunities.
The returns we are getting in our business today are very good - providing great opportunities to reinvest in our own business - improving the efficiency of our existing capacity and putting a little more capacity in the business, sufficient to cover the jobs we are not able to make today and to respond to market growth opportunities.
There are some real exciting markets in West Africa and Central Asia with significant market share growth opportunities for BJ. We have proven we can do well in these markets with our focus and growth strategy.

Hart's E&P: How important to your future growth is the boom in gas activity?
Stewart: Gas is a major part of our business in North America, and we think it's going to be more significant in the international markets than it is today. In North America, many of the gas reservoirs are significantly depleted. The easy-to-get gas is behind us. The remaining gas opportunities are more difficult and costly to access and require more complex completions to produce the gas. That is good for our business since more of our proprietary products and services are required.

Hart's E&P: How are you able to control costs while increasing activity levels?
Stewart: As the market began to recover in the latter part of 1999, we were very focused on getting our equipment utilization up. So the primary objective was to hire personnel who could operate equipment. We were very stingy in adding costs in the overhead areas.
We go through a process of updating our year-forward plan every quarter. Everyone has needs that require additional cost; and as we update our plan we just have to decide which we can address now and which should be deferred.

Hart's E&P: What steps is BJ taking to hire the people it needs to propel its growth?
Stewart: When the market recovered, our senior equipment operators advanced to management jobs. We have been hiring beginning equipment operators. However, getting equipment operators on board has not been real easy. In the US market, we have hired about 50 to 60 people per month for the last year and a half. We rely on our regions to establish local hiring efforts with help from corporate.

Hart's E&P: Where are the best opportunities for growth in your company?
Stewart: There should be some growth in the US market, but the potential for significant growth is in the international markets. We expect Latin America to be strong and growing. The Far East and Middle East have experienced some growth already. Central Asia - Kazakhstan, Azerbaijan - all these countries offer new opportunities. West Africa is another market that is just beginning to experience good solid growth.

Hart's E&P: How much is new technology going to play in the future expansion of BJ?
Stewart: Research and development is important, no doubt about it. We have done a lot in the area of technology as we have grown the company. When we started in 1990 as a public company, we were spending about $8 million a year in research and engineering. This year we'll spend somewhere in the range of $35 million to $37 million. Although we do research and development in all our service lines, we've been significantly focused on improving and advancing in the stimulation area, fracturing and acidizing. Our goal has been to be the innovation leader.

Hart's E&P: What value does BJ place on information technology (IT)?
Stewart: We place a lot of value on IT. Our IT department has been the fastest-growing department over the past 5-year period. We have about 80 employees involved in IT today.
IT will make information more readily accessible to our people. We can then use that information for designing and executing more effective jobs for our customers. That's our objective.

Hart's E&P: What do you think of e-procurement?
Stewart: I think there's a place for it. Initial uses most probably will focus on the purchase of commodity parts and components for our manufacturing. Presently, we've determined that we're pretty efficient and do not intend to change our current practices. However we'll continue to evaluate the benefits as the technology evolves.
I don't think our customers' use of e-procurement will be a significant part of our business in the foreseeable future. So much of what we do is custom job design depending on special customer needs. We're like a consultant in many cases, and being a consultant requires a lot of one-on-one dialogue with your customer. So I don't think we can really accomplish what is needed today with the current concepts of e-procurement, although that may change.

Hart's E&P: How has the relationship between service companies and oil companies evolved?
Stewart: There's a lot of respect, I think, that the oil companies have gained for the service companies. That respect has translated into reliance. We give great service, and I think that's recognized by the oil companies. Back years ago, the oil companies did their own research because they didn't trust the service companies. There's very little research that duplicates what we do today.

Hart's E&P: What are the biggest challenges you see in the near future, both for BJ and for the service and supply industry?
Stewart: The biggest challenge we have today is getting the people on board and being able to cover all the work that's available to us because we can't do everything that comes our way.
I think the next big challenge, as this market recovery continues, is getting more efficient equipment designed and out into the field. Making our operating fleet more efficient and effective with higher horsepower pumps and automated controls, to add efficiency to our business, is the other major challenge we have here.
Hart's E&P: What do you expect BJ to look like in the next 5 to 10 years?
Stewart: It depends on the marketplace. Our focus up to now has been to be the best. And I think we've done a great job in achieving our objectives and improving the company from an operations perspective, improving the quality of our services in the field, the quality of our products. I suppose 5 to 10 years from now, we'd like to be the biggest in the business, but still the best.

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