Baker Hughes Inc. (BHI), the world’s third largest oilfield services provider, is reducing its workforce in Brazil after losing contracts with Petroleo Brasileiro SA (PETR4) to competitor Halliburton Co. (HAL), an oil union said.
Baker Hughes fired about “150 workers in the past two months and has said it will fire 150 more,” Jose Rangel, head of the Sindipetro Norte Fluminense union that represents some of the employees, said in a phone interview from Macae, Brazil. The cutbacks follow the loss of contacts to other companies, some of which are hiring the fired workers, said Rangel.
Service companies such as Houston-based Baker Hughes are facing smaller margins in contracts with Petrobras, which accounts for about 92 percent of Brazil’s oil output, as the state-run producer seeks to reduce costs. Baker Hughes had substantial “demobilization” in the third quarter, Chief Executive Officer Martin Craighead said Oct. 18. Halliburton, the No. 2 provider, fired about 100 workers earlier this year even after winning additional work, according to the union.
“Baker Hughes has repositioned assets and staff out of Brazil after losing market share to Halliburton,” Brad Handler, a New York-based analyst at Jefferies Group LLC, said by telephone. “Halliburton ramped up its capabilities in anticipation of performing more work, but is now seeking to trim these after volumes are less than expected.”
Christine Mathers, a spokeswoman for Baker Hughes, said in an e-mailed response to questions that the company has more than 1,800 employees in Brazil and continues to execute a plan to improve profitability. She declined to comment when asked about dismissals.
Petrobras declined to comment on decisions taken by other companies or its drilling programs, it said in an e-mailed reply. Halliburton didn’t answer questions sent by e-mail.
Shares in Baker Hughes have gained 32 percent in the past year while Halliburton is up 57 percent.
Baker Hughes’s share of Brazil’s offshore drilling services market fell to about 20 percent from 50 percent after a 2012 contracting round, while Halliburton’s rose to 50 percent, Handler said.
Halliburton is expanding at a time Petrobras curbs some pre-salt drilling programs to focus on the Campos basin, where it can get to the oil faster because it has a network of platforms and pipelines in place, he said.
“In Brazil, we’ve seen a significant reduction in drilling activity over the course of the year with a shift in focus,” Halliburton Chief Operating Officer Jeff Miller said in an Oct. 21 conference call. “We’re working with our customer to right-size our operational footprint, but we expect reduced activity levels to extend through the fourth quarter and continue into the next year.”
Petrobras’s role as the dominant producer leaves service companies vulnerable to changes in its spending plans, said Will Honeybourne, a managing director at First Reserve, a private equity firm that invests in the oil and gas industry.
The company’s legal obligation to operate all new pre-salt projects with a minimum 30 percent stake means suppliers will remain reliant on a single client in the future, he said.
Petrobras began measures to reduce costs and increase efficiency last year after Maria das Gracas Foster became chief executive officer. The company has a $237 billion five-year investment plan centered around the development of world’s largest oil discoveries this century in deep waters.
While developing the pre-salt reserves, Petrobras has had higher than expected flow rates at wells, which led it to reconsider the number of wells needed.
Under Brazilian contracts, the number of wells to be drilled can be altered and Halliburton is now negotiating to pull equipment out of the country after expanding to a higher capacity level than needed, Jefferies’s Handler said.
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