American oilfield services giant Schlumberger announced plans Friday for deep spending reductions, including cutting 21,000 jobs across its operations. The company announced in a statement a one-time charge of $3.7 billion to restructure, with over $1 billion of those charges going toward severance costs.
The company did not indicate how many of the 21,000 jobs would be lost in the United States.
Schlumberger and rivals such as Halliburton and Baker Hughes have been forced to cut costs dramatically to survive a dramatic fall-off in demand for oil industry services, as the CCP (Chinese Communist Party) virus crisis hammered demand for oil and gas products in the second quarter.
However, the oil and gas industry is showing signs of stabilization, as Baker Hughes reported Friday that the number of oil rigs active across the United States increased by a single rig to 181. The number of gas rigs declined by 3 for a slight overall decline, however. The total number of active rigs now stands at 251—a long way from the 695 counted in July of 2019, according to the company’s rig count.
— Baker Hughes (@bakerhughesco) July 24, 2020
On Monday, a Halliburton statement (pdf) reported a net loss for the second quarter, 2020 of $1.7 billion, while Baker Hughes reported that the company’s adjusted operating income was down 71 percent for the quarter compared to last year.
Schlumberger has been forced to cut 21,000 jobs—a fifth of its workforce—amid the reduction in drilling, fracking, exploration, and oilfield development as demand for oil and gas declined globally. Other charges included a $977 million charge for fixed asset and right-of-use asset impairments, and $603 million in inventory write-downs. $730 million in losses were related to projects in Latin America, including pipeline damage from a landslide in Ecuador.
“This has probably been the most challenging quarter in past decades,” Schlumberger CEO Olivier Le Peuch said in the statement. Le Peuch said that Schlumberger’s decline in revenue was due to a fall in North American activity and downward revisions to international customer budgets.
“North America revenue declined 48 percent sequentially with land revenue falling 60 percent as customers dramatically cut back spending,” Le Peuch said. The company’s international revenue also dropped 19 percent sequentially, with activities in Latin America and Africa hardest hit. However, company revenue in Russia, Europe, Asia, and the Middle East was more resilient, declining only 10 percent sequentially.
Outlook for Oil & Gas
Schlumberger expects oilfield conditions in North America to improve in the third quarter, as fracking completions increase. However, activities will recommence from a very low base. The company cautions that any renewed disruption due to a resurgence in CCP virus infection levels could pose a risk for the company, as could significant downturns in demand for oil and gas products.
Those views echo those of Lorenzo Simonelli, Chairman and Chief Executive Officer of Baker Hughes. Simonelli said Wednesday that it is difficult to predict future market conditions at the moment. He said Baker Hughes will focus on preparing for possible future market volatility by reducing cost bases and focusing on higher-margin activities.
“Although the majority of lockdowns have been easing globally and economic activity likely troughed during the second quarter, visibility on the economic outlook remains extremely limited,” Simonelli said in a statement. “More specifically, the risk of a second wave of virus cases, the reinstitution of select lockdowns, and the risk of lingering high unemployment creates an uncertain economic environment that likely persists through the rest of 2020.”
Halliburton Chairman, President, and CEO Jeff Miller was upbeat about his company’s ability to weather the storm—and emerge strong. He said the company would focus on efficiency and cost reductions over the coming months.
— Halliburton (@Halliburton) July 20, 2020
“The strategic actions we are taking will further boost our earnings power and ability to generate free cash flow as we power into and win the eventual recovery,” said Miller in the statement this week.