Schlumberger lays off 11,000 employees, cites North American downturn

Schlumberger CEO says global economy recovering, oil demand up by 1 million bbl/d in 2015

The world’s biggest oil and gas service company is laying off 11,000 workers, which is on top of the 9,000 jobs cut in January. Schlumberger will have 15 per cent fewer employees compared to the third quarter.

Energy producers are expected to slash $114 billion in spending this year in response to plummeting oil prices. The Paris-based company generally employs 120,000 workers in 85 countries.

Schlumberger says first-quarter revenue declined by 19 per cent, driven by the severe decline in North American land activity and associated pricing pressure. Schlumberger net income including charges and credits was $975 million in the first quarter of 2015, $302 million in the fourth quarter of 2014 and $1.592 billion in the first quarter of 2014.

“International operations were impacted by reduced customer spend in addition to seasonal effects in the Northern Hemisphere and the fall in value of the Russian ruble and the Venezuelan bolivar,” said CEO Paal Kibsgaard.

“Three-quarters of the overall sequential decline was due to lower activity and pricing, while the remainder was the result of currency effects and non-recurring year-end sales.

“Schlumberger was one of the better prepared for the impending downturn,” James West, an analyst at Evercore ISI in New York, told Bloomberg News. “They took action very early to start reducing costs and accelerate the transformation program.”

Schlumberger says it has been able to minimize the impact on its margins through “prompt and proactive cost management.”

“These actions have successfully improved financial performance compared to previous industry cycles, with an overall sequential decremental operating margin of 33 per cent as North America and the International Areas reported 39 per cent and 25 per cent, respectively,” said Kibsgaard.

“In spite of the detailed preparations we made in the fourth quarter, the abruptness of the fall in activity, particularly in North America, required us to take additional actions during the quarter. These included the difficult decision to make a further reduction in our workforce of 11,000 employees, leading to a total reduction of about 15% per cent compared to the peak of the third quarter of 2014.”

According to Kibsgaard, the global economy is continuing its steady recovery and oil demand is still expected to increase by 1 million bbl/d in 2015. Significant reductions in E&P spend are starting to impact supply in both North America and internationally, and supply is expected to tighten further in the second half of the year.

“The largest drop in E&P investment is occurring in North America, where 2015 spend is expected to be down by more than 30 per cent. We believe that a recovery in US land drilling activity will be pushed out in time, as the inventory of uncompleted wells builds and as the re-fracturing market expands,” said Kibsgaard.

“We also anticipate that a recovery in activity will fall well short of reaching previous levels, hence extending the period of pricing weakness.”

Schlumberger expects 2015 E&P spending to fall around 15 per cent, creating challenges in terms of both activity and pricing levels, but these challenges will be considerably less than the headwinds the company is facing in North America.

“By geography, we anticipate growth in our key markets in the Middle East as the core OPEC producers continue to pursue market share as the non-OPEC part of the international supply base continues to weaken,” said Kibsgaard.

“Elsewhere, we expect to see overall activity reductions in Latin America, Europe, Sub-Saharan Africa, and in Asia, while in Russia, we believe that conventional land activity in Western Siberia will continue to be resilient, but that the revenue contribution from the region will remain subdued until the currency effects have normalized.”

Kibsgaard says Schlumberger will remain focused on what it can control –  its cost and resource base, the deployment of technology and expertise, and the quality and integrity of the products and services it provides.

“We continue to work closely with our customers in meeting their objectives of lowering cost per barrel, through the introduction of new technologies, continuous improvements in both reliability and operational efficiency, and through more integrated workflows and performance-based contracts,” said Kibsgaard.