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Service companies keep cutting as rigs keep falling

Nationally the oil and rig count fell by 22 rigs

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Posted: Friday, April 24, 2015 5:30 pm

Permian Basin producers again dropped drilling rigs this week, Baker Hughes reported Friday, as service companies announced another round of job cuts.

Baker Hughes counted 12 fewer rigs in the Permian Basin, leaving 246 drilling for oil and gas in the region. About 74 percent drill horizontal wells as producers focus on core areas.

Nationally, the oil and gas rig count fell by 22 to 932 rigs.

Many observers expect the downward march to continue.

The regional benchmark Plains-West Texas Intermediate oil price rallied this week — ending Friday at $53.75 per barrel. But it remains less than half the price of last summer amid concerns of oversupply and weak demand.

And the largest oilfield services companies continue to lay off thousands more employees in what some analysts considered a precursor to layoffs among their smaller competitors. Oilfield services companies are some of Odessa’s top private employers.

 “The Permian is definitely seeing major rig count reductions and major reductions in both drilling and completion,” said Chris Robart, a managing director with IHS Energy in Houston. “So you are going to see that coming down, the layoffs, in addition to what you are seeing.”

For now, local workforce officials estimate layoffs in the several thousands, as judged by warnings of mass layoffs reported to the Texas Workforce Commission. But not all companies have to submit such warnings, and public companies that announced large scale layoffs have offered little in the way of a regional breakdown.

Baker Hughes on Wednesday announced total layoffs of about 10,500, a 17 percent reduction of the company’s workforce. That represents 3,500 more job cuts that announced previously.

The service company did not detail where those cuts would be made but said the layoffs are part of a strategy to trim $700 million a year that includes closing and consolidating facilities and idling equipment.

“Looking out to the second quarter, we expect unfavorable market conditions to persist,” said Martin Craighead, chairman and CEO, in a Tuesday statement. “North America and international rig counts are projected to continue declining across most onshore and shallow water markets, which would further intensify the oversupply of oilfield services.”

Weatherford also announced plans to increase job cuts to about 10,000, about 2,000 more than announced earlier this year. That’s about 18 percent of the company’s workforce, with more than 3,000 of the layoffs in North America, executives reported in a Wednesday conference call.

“This increase in the program will be concentrated in North America to address the continuing reduction in activity,” said Krishna Shivram, executive vice president and CFO of Weatherford.

Halliburton’s CEO and chairman Dave Lesar on Monday told investors the company expects to continue seeing price pressure until the rig count stabilizes, even though activity in North America has dropped by about half since the peak of November.

“North America experienced an unprecedented decline in drilling activity during the first quarter, which drove pricing pressure and margin compression across all product lines,” Lesar said in a statement.

Halliburton laid off about 9,000 employees in the last two financial quarters, which is more than 10 percent of the global headcount, CFO Christian Garcia told investors on Monday.

Garcia said “additional actions will likely be required” albeit “significantly smaller.” Executives did not put a number on a new round of layoffs.

Last week, Schlumberger executives said they would cut another 11,000 employees, bringing total cuts globally to about 20,000. Schlumberger CEO and Chairman Paal Kibsgaard on April 17 described the “pace and magnitude” of the North American slowdown as “almost unprecedented, and we have to go back to the mid-1980s to find anything similar.”

IHS reports recent contracts for well completion work averaging 30 to 40 percent less than last year. Pressure from oil companies struggling with low prices caused a 30 percent cost reduction on average in hydraulic fracturing, the process of cracking tight rock to release oil and gas by blasting it with high-pressure water, sand and chemicals.

The firm’s analysts expect a slow recovery to begin by early 2016.

“The big guys have mostly gotten ahead of whatever cuts they are going to make,” Robart said. “Mostly what you’ll see is layoffs due to the small and midsized companies, whether they are failing or closing doors, I think it’s mostly companies who are not going to be solvent or viable anymore and are discontinuing service.”

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