Schlumberger Cuts Another 10,000 Jobs as Crude Rout Deepens

Rebalancing the Global Oil Market
  • Charges add up to $2.1 billion for layoffs, restructuring
  • Company says it will reboot $10 billion share buyback plan

Schlumberger Ltd. cut another 10,000 jobs to cope with a crude market collapse that’s forced its customers to slash spending for two consecutive years.

The world’s largest oilfield service provider reported a loss of $1.02 billion, or 81 cents a share, compared to profit of $302 million, or 23 cents, a year earlier, the Houston- and Paris-based company said in a statement Thursday. Excluding charges, Schlumberger earned 65 cents a share, 2 cents more than the average 63 cents estimated by 37 analysts in a Bloomberg survey. 

Schlumberger, which has fallen 44 percent since the downturn began 19 months ago, will launch a new $10 billion stock buyback program as its current repurchase plan of the same amount wraps up. The results were released after the close of regular trading. Shares rose 0.5 percent to $61.75 at 5:17 p.m. in New York.

"It’s always nice to know the company is investing in itself," Matt Marietta, an analyst at Stephens Inc. in Houston, who rates the shares the equivalent of a buy and owns none, said in a phone interview. "All things considered, I think their cost-savings program can be viewed positively."

Hefty Charges

The company took $2.1 billion in charges to account for the latest layoffs and restructuring. That exceeded the $1.77 billion in charges from a year ago as the company completed its first major round of restructuring amid plunging oil prices. Total job cuts for the company since the third quarter of 2014 now add up to 34,000 -- 26 percent of its workforce, according to Joao Felix, a spokesman. 

The global energy industry slashed more than $100 billion in spending and 250,000 jobs last year to keep pace with crude prices that have fallen more than 70 percent since June 2014. The total number of U.S. oil and natural gas drilling rigs working in the quarter fell to 698, down more than half from 1,840 rigs at the end of 2014.

Sales collapsed as the price for global benchmark Brent crude averaged $44.75 a barrel in the quarter, almost 42 percent less than the year-ago period, forcing the company to cut prices to retain business.

Schlumberger’s revenue dropped 39 percent in the quarter to $7.74 billion, the lowest in five years.

Outlook Grim

"The decrease in land activity was the sharpest seen since 1986," Chief Executive Officer Paal Kibsgaard said in the statement. With the rig count dropping so steeply, "the massive over-capacity in the land services market offers no signs of pricing recovery in the short to medium term."
 
The company’s operating profit margin could slip to as low as 5 percent in North America by the first quarter, after it was 8.9 percent in the third quarter, Lemoine said. It may not be until late 2017 that Schlumberger and its peers will gain the ability to push prices back up for some of their highly competitive services such as hydraulic fracturing, he said.

"The marginal and swing companies will be fighting hard for utilization," Luke Lemoine, an analyst at Capital One Southcoast in New Orleans who rates the shares the equivalent of a buy and owns none, said in a phone interview before the results were released. "It’s going to be pretty difficult for prices to go up."
  
(Schlumberger is scheduled to hold an earnings conference call Friday at 9 a.m. New York time, accessible at EVTS.)

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