Halliburton Cuts More Jobs as Fracking Hit Worst in Downturnby
Company has reduced workforce by 18,000 jobs, or about 21%
World's largest fracking-service provider reported loss
Halliburton Co. cut another 2,000 jobs in the past month as the worst oil market slump in decades saps demand for work at the world’s largest provider of fracking services.
The Houston-based company said the first quarter of next year may represent the lowest point for its North American profit margin as customers start fresh with new spending budgets for 2016 and tap Halliburton’s pressure-pumping expertise to start new wells. The comments came after the company reported a third-quarter loss of $54 million.
"The pumping business in North American is clearly the most stressed segment of the market today, but it’s also the market we know the best," President Jeff Miller told analysts and investors Monday on a conference call. "This is the segment that we expect to rebound the most sharply."
Oil has swung between a bear and a bull market in North America this year as the drilling rig count slid. Explorers have cut more than $100 billion from global spending plans for the year after crude prices fell by more than half since June 2014.
Halliburton had a loss of 6 cents a share in the third quarter compared with net income of $1.2 billion, or $1.41, a year earlier, according to a statement Monday. Excluding certain items, the per-share result was 4 cents more than the 27-cent average of 34 analysts’ estimates compiled by Bloomberg. Sales dropped 36 percent to $5.6 billion.
The company has now cut its workforce by 18,000, or about 21 percent, since its peak last year, Emily Mir, a spokeswoman, said Monday in an e-mail.
Prices that service companies charge for hydraulic fracturing, which blasts water, sand and chemicals underground to release trapped hydrocarbons, are projected to fall as much as 37 percent in North America this year, according to IHS Inc.
Fracking represents about 70 percent of the cost for an average U.S. well, Chief Executive Officer Dave Lesar said on the call.
"That’s naturally where customers have gone in terms of the pressure to reduce costs," Lesar said.
Halliburton is operating near break-even in North America, reporting an operating profit margin of 0.8 percent in the quarter, while Schlumberger Ltd. reported a margin of 8.9 percent for the same period last week. Halliburton has said it’s working at costs higher than the market needs right now so it can be ready for the extra work that comes in once its deal closes in the next few months to buy rival Baker Hughes Inc.
"We are not going to try to call the exact shape of recovery, but we expect that the longer it takes, the sharper it will be," Chief Executive Officer Dave Lesar said in the statement. "Ultimately, when this market recovers we believe North America will respond the quickest and offer the greatest upside, and that Halliburton will be positioned to outperform."
Schlumberger predicted last week that it will be 2017 before the industry recovers from the worst oil market rout in decades.
“The market is underestimating how long this period is going to take,” Paal Kibsgaard, Schlumberger’s chief executive officer, said on a conference call with analysts and investors after the world’s largest oilfield services provider reported a 49 percent drop in third-quarter profit.
To survive the downturn and better compete with its largest rival, Halliburton, the second-largest oilfield services provider, is looking to sell assets to win regulatory approval for its acquisition of No. 3 Baker Hughes, a deal valued at $34.6 billion when it was announced in November 2014.
Halliburton took one-time charges of $319 million after taxes in the quarter related to the lower value of its assets due to the oil market downturn and costs related to the Baker Hughes deal.
"North America came in roughly in line," James West, an analyst at Evercore ISI in New York who rates the shares a buy and owns none, said in a phone interview. "We had expected a break even quarter for them, given they’re carrying about 400 basis points of extra costs right related to the Baker transaction."
Halliburton, which has 27 buy ratings from analysts, 8 holds and 1 sell, fell 1.2 percent to $37.36 a share in New York.
Baker Hughes will release its results on Oct. 21.