Oil giants continue to slash jobs
Signs of recovery not enough to stop cuts at Baker Hughes, Weatherford
Two of the world’s largest energy services companies are continuing to slash jobs in large swaths amid financial losses, even as signs of optimism and drilling activity emerge in the West Texas oil fields.
Houston-based Baker Hughes said Tuesday it cut an another 2,000 jobs in the third quarter — 1,400 layoffs plus attrition — and Weatherford International axed another several hundred positions as it completed its round of 8,000 terminations for the year. All this comes as companies increase their North American revenues, but losses are continuing internationally and offshore, and there’s talk of slow growth in 2017.
Many executives and analysts say the industry hit bottom mid-year, and that the worst may be over, but the outlook is hardly rosy. Companies, still contending with heavy debt and low oil prices, face a long and difficult slog that likely will mean more cost-cutting and layoffs, albeit at a diminishing rate, as the recovery begins to gain traction, analysts said. By next year, conditions should improve further as surpluses shrink and prices slowly rise.
“They’re getting to the point where they’re starting to think about a rising environment,” said Praveen Narra, an analyst at investment bank Raymond James. “It’s difficult today, but tomorrow looks better.”
The news remains tougher for smaller services companies as the biggest players scoop up more market share. Houston-based Key Energy Services and Fort Worth’s Basic Energy Services both filed for bankruptcy protection this week.
The world’s two biggest energy services companies, Schlumberger and Halliburton, said last week they stopped laying off people after June.
However, they combined to eliminate 85,000 jobs in 18 months. During that time, Halliburton expanded its U.S. market share, while Schlumberger gained more ground overseas, showing just how bad it is for the smaller competitors.
Baker Hughes is the world’s next biggest player — an increasingly distant third after Halliburton — and it’s still cutting jobs in part because it was limited in the cutbacks it could make while its proposed acquisition by Halliburton remained pending.
That deal fell apart in May after the Justice Department intervened because of anti-competitiveness concerns.
Baker, in turn, received a $3.5 billion breakup fee from Halliburton during the second quarter — a generous gift — yet not enough to stop the bleeding.
‘We fixed a lot of things’
Baker Hughes Chairman and Chief Executive Martin Craighead said Tuesday the company will decide in the coming months whether to sell its hydraulic fracturing, or fracking, business as it focuses more on drilling and equipment sales.
Baker Hughes has surpassed its goal of $500 million in annual cost savings, he said, and will now aim for $650 million in reductions by the end of the year.
Craighead also painted a pretty picture, internally, despite the layoffs.
“We have a lot of smiles on this side of the fence. We feel really good about where our business is going,” Craighead said. “We moved extremely fast. We fixed a lot of things. We still have more to do.”
Baker Hughes posted a quarterly loss of $429 million, but that compares to a $911 million loss in the previous three months. Everything is relative. As such, Baker’s stock jumped more than 4 percent Tuesday, increasing by $2.24 per share and closing at $54.39 — its highest point of the year.
Baker Hughes employs about 34,000 people globally now, down 28,000 people from a headcount of more than 62,000 employees before the oil bust began in late 2014.
While Halliburton, Schlumberger and Weatherford all said the industry can recover more with oil prices stabilized above $50 a barrel, Craighead said he sees a little more conservative outlook.
“We continue to believe that oil prices in the mid-to-high $50s are required to sustain recoverability in North America,” he said.
The benchmark for U.S. oil settled Tuesday at $49.96 per barrel, down 56 cents for the day, as pricing has hovered right around $50 the last couple of weeks, buoyed in part by optimism that OPEC will reach a deal next month to reduce oil production.
Rig count climbing
In less than two years of the bust, more than 210 North American energy companies have filed for bankruptcy. Oil pricing seemingly bottomed out just above $26 a barrel back in February.
Since then, drilling rigs have increasingly been added to the oil patch, especially in West Texas’ resilient Permian Basin. The rig count climbed to 553 last week, up from a low of 404 in May.
The news was worse on the surface for Weatherford, which has its main operations in Houston, posting a $1.8 billion net loss for the third quarter, even though its North American revenues slowly began to rise. About $1.4 billion of the losses come from the one-time write-downs on the lost values of rigs, equipment and other assets, as well as other tax charges.
Weatherford’s $1.35 billion in revenues are down almost 40 percent from last year, but that’s just a 3 percent dip from the second quarter.
The optimistic point of emphasis by Weatherford Chairman and CEO Bernard Duroc-Danner is the company’s North American revenues actually grew 12 percent from the previous quarter.
“This is the first step towards a recovery,” he said.