Energy recovery pits land vs. sea
Oil field giant boasts profit, but jobs are slashed at equipment maker
The state of the energy sector’s recovery is a tale of land versus sea. The shale oil fields are slowly returning to life while the offshore sector, including the Gulf of Mexico’s deepwater drillers, remains in decline for the foreseeable future.
That divergence was underscored Thursday when the world’s largest oil field services company, Schlumberger, reported a modest profit in the third quarter and an end to mass layoffs, while FMC Technologies, a Houston equipment maker focused on the offshore market, said it slashed another 1,000 jobs, including 175 in Houston, and plans to cut more before the end of the year.
The different outlooks were also a reminder that while oil prices have recovered in recent months, they remain relatively low and continue to pressure the industry.
Crude settled Thursday in New York at $50.63 a barrel. At those levels, efficient drillers in U.S. shale plays, particularly the productive
Permian Basin in West Texas, can make money, analysts said. Not so for offshore fields, which require years and billions of dollars to develop,
“Land is the first to recover,” said Rob Desai, an energy analyst at Edward Jones in St. Louis. “Offshore is the complete opposite.”
Oil prices have recovered from a low of $26 a barrel in February, and U.S. drillers have returned to the oil patch, bringing more than a 100 rigs back into operation since May, according to the Houston oil field services company Baker Hughes. Schlumberger, which reported a third quarter profit of $176 million, followed its main rival, Halliburton of Houston, which on Wednesday also reported a small profit for the third quarter. Both attributed their turnarounds from multi-billion dollar losses in the previous quarter to a pick up in their North American onshore businesses.
The companies, which sell drilling and other services to oil and gas production firms, are considered by analysts as bellwethers of the broader energy industry.
Their improved performance indicates the onshore U.S. market “has bottomed and rounded the corner,” said Byron Pope, an energy analyst at Houston investment bank Tudor, Pickering, Holt & Co.
Schlumberger Chairman and Chief Executive Paal Kibsgaard agreed.“After calling the bottom of the cycle in the second quarter of this year, our business stabilized in the third quarter,” he said in a statement.
But there is also a long way to go. While Schlumberger maintained its global workforce at about 100,000 employees, it axed about 50,000 jobs in 18 months, more than any other any other company in the world. Its $176 million profit was down significantly from $989 million profit during the same period last year, while revenues declined to about $7 billion from $7.2 billion in the second quarter.
Kibsgaard conceded that a long, hard slog was still ahead. “We maintain that a broad-based V-shaped recovery is unlikely given the fragile financial state of the industry,” he said.
Schlumberger reported earnings after U.S. markets closed. Its shares fell 45 cents Thursday to $82.99 a share.
The energy services giant has its principal offices in Paris, Houston, London and The Hague. Schlumberger in April finalized its purchase of Houston-based Cameron International, which added close to 20,000 jobs worldwide, including about 4,000 in the Houston area.
FMC Technologies is in the process of combining with Paris-based Technip in a $13 billion merger, expected to be finalized early next year.
FMC attributed another round of deep job cuts as a key contributor to the surprising $32 million third quarter profit reported Wednesday after stock markets closed. FMC has cut close to 5,200 workers — more than 25 percent of its workforce — over the past two years, and now counts about 14,500 employees, 1,000 fewer than three months ago.
“With headcount, we’ve been very aggressive [in reducing it] and, as you’ve seen, we’ve got more to go,” said Maryann Seaman. FMC’s chief financial officer.
The company’s CEO, Doug Pferdehirt, said he expected the offshore sector to struggle well into 2017, and possibly beyond. He will become the CEO of the merged TechnipFMC, which will maintain headquarters in Houston, Paris and London.
Pferdehirt said that as the offshore industry finds ways to reduce expenses, such as by standardizing equipment so it can be manufactured at lower costs, some offshore projects will move forward next year. Big projects that were delayed and retooled to reduce costs could get the green light, he said.
FMC’s stock climbed more than 4 percent, or $1.37, to close Thursday at $32.86 a share.