Losses forcing oil giant to make big cuts
Multibillion dollar losses in consecutive quarters have forced oil field services giant Schlumberger to lay off 1 in 5 employees this year, reducing its workforce to a size not seen since the rise of the shale revolution more than 10 years ago.
In announcing a $3.4 billion second-quarter loss Friday, the world’s largest provider of drilling and fracking services said it had slashed its global headcount to 85,000 from more than 105,000 since January. The three months ended in June were the “most challenging quarter” in decades, CEO Olivier Le Peuch said, as the coronavirus pandemic devastated the oil and gas industry.
The quarterly loss, equal to $2.47 per share, comes a year after the company made $492 million, or 35 cents a share, in 2019’s second quarter — and follows a first-quarter loss of $7.4 billion. Second-quarter revenue declined 35 percent to $5.4 billion from $8.3 billion in the same period a year ago.
Schlumberger, headquartered in Paris with principal offices in Houston, attributed the loss to a $3.7 billion impairment that included more than $1 billion of severance pay for nearly 21,000 laidoff employees and writing down the value of assets by $2.7 billion.
Schlumberger joined numerous energy companies in reducing asset values under the pressure of falling crude prices that sank to negative-$37 in April. The economic fallout of the coronavirus pandemic created a global oil glut that forced producers to shut
down most production and reduced the need for the services that companies such as Schlumberger provide.
The unprecedented fall in North American activity forced the company to close 150 facilities on the continent, Le Peuch said.
“In short, we readied the business for a market of smaller scale and lower growth outlook but with higher returns,” he said.
But the downturn and the pandemic, he said, also have helped accelerate the industry’s digital transformation and adoption of technology, moves expected to reduce costs and boost efficiency.
Nearly two-thirds of Schlumberger’s remaining employees are working remotely to stay safe during the pandemic, the company said. Some 250 engineers used remote operations technology in the second quarter to drill 1,250 wells, nearly two-thirds of the company’s drilling activity.
“We share the same vision for the future of our industry, with ambition to deliver faster and lower-cost wells through digital technology,” Le Peuch said.
Schlumberger’s secondquarter results missed Wall Street revenue expectations by $60 million, but its shares gained 18 cents to close Friday at $19.48.
The company’s $465 million of free cash flow — despite severance payments and growing investments in digital technologies — were praised by analysts with firms such as Evercore, Simmons Energy and Scotiabank who said the company is set up for long-term gains when oil prices rebound.
Jennifer Rowland, an oil industry analyst with financial advisory firm Edward Jones, disagreed, saying drilling cutbacks don’t bode well for the future of oil field services firms.
“North American producers are expected to cut 2020 spending plans by 50 percent,” said Rowland, who is advising clients to sell their Schlumberger shares.