Halliburton has cut its global headcount by about a third since late 2014, and the pain continued this year as its Q1 revenue fell some 40% to $US4.2 billion ($A5.44 billion) versus $7 billion in the corresponding period last year.
As the US rig count reached a record low and the worldwide rig count rig count is at its lowest level since 1999, Halliburton had reportedly closed or is in the process of closing over 100 different service points globally even as it seeks to bed down its takeover of Baker Hughes.
Halliburton CEO Dave Lesar said operators – his company’s clients – faced “immense” pressure globally, and have taken defensive actions to solidify their finances including drastic cuts to headcount and capital spend, which he described as “necessary” actions that will lead to production declines in the back half of 2016.
However, he warned that the much-hoped for recovery would not be smooth sailing.
“Even when operators feel better about the markets, they will still face issues of balance sheet repair and we believe they will be cautious in adding rigs back,” Lesar said.
“As activity levels recovery, we believe there will be a structural shift to lowering cost per barrel of oil equivalent, through more collaborative business models with service providers, more aggressive application of our industry-leading technologies and less duplicative costs.”
The US rig count was down 27% sequentially for the March quarter as the market endures what Lesar called an “unsustainable market” – which he defined as one where all service companies were losing money in North America.
He said industry faced a more than 40% drop in global drilling and completion spending for the second straight year, and Halliburton expects to see an additional 50% fall in North America spend in 2016, following last year’s 40% figure.
“A large number of competitors, especially in North America, are rebasing their cost structures downward, in many cases by converting their debt to equity, and underinvesting in areas such as maintenance and technology, while continuing to price service work at less than cost,” Lesar said.
“At Halliburton, we revisited every cost from manufacturing to delivery logistics to field operations. This included looking hard at capital equipment needs, required headcount and service delivery infrastructure.”
This led Halliburton to the “easy” conclusion that the industry was “grossly overcapitalised”, particularly in North America, which contributed to Halliburton taking a $2.1 billion after-tax restructuring charge related mainly to asset write-offs and severance costs.
Schlumberger pain
The pain is also being felt over at rival Schlumberger, whose profits dropped by nearly 50% as it copped “one of the steepest quarterly declines” since the downturn started.
Schlumberger’s global headcount fell to 93,000 in during the quarter as it not only let go 8000 staff but reclassified about 5500 contractors as permanent workers.
About a third of its workforce – about 42,000 – has been axed since the downturn in oil prices started mid-2014.
“The decline in global activity and the rate of activity disruption reached unprecedented levels as the industry displayed clear signs of operating in a full-scale cash crisis,” CEO Paal Kibsgaard said.
“This environment is expected to continue deteriorating over the coming quarter given the magnitude and erratic nature of the disruptions in activity.”
The good news for Schlumberger was that its takeover of Cameron closed on April 1, but its revenue drop of 16% was one of the steepest quarterly declines since the downturn started, driven by a continuing drop in activity and persistent pricing pressure throughout its global operations.
Project delays, job cancellations and activity disruptions didn’t help the situation for Schlumberger, whose North America revenue fell 25% sequentially as the US land rig count declined 31% following customer budget cuts.
“Recent spending surveys for 2016 now indicate sharper declines than previously forecasted,” Kibsgaard said.
“Global spending reductions in 2016 are approaching 25%, corresponding to reductions between 40% to 50% in North America and around 20% internationally.
“In this environment, our overall outlook for the oil markets remains unchanged with the tightening of the supply-demand balance expected to continue during the rest of the year.”
Although new exports from Iran and growing global oil inventories drove oil prices lower earlier in the quarter, prices have rebounded to around the $40 level due to underlying market trends, supply disruptions and talks about a production freeze – however fruitless they may be.
Demand growth forecasts remain steady, while OPEC production levels have been largely flat since mid-2015. Production in North America continues to fall as the effects of decline become more pronounced, while mature non-OPEC production is also declining in a number of regions.
