Its interim chief financial officer Christian Garcia said on a conference call yesterday that Halliburton had cut a total of 9000 workers – over 10% of its global workforce – over the past two quarters as lower oil prices forced drilling companies to make significant reductions.
Garcia said Halliburton was “continuing to take a hard look” at all its operations and that “additional actions [would] likely be required in the second quarter”, which analysts interpreted as meaning further cuts would be made.
Financial services firm Cowan Group expects Halliburton’s exploration and production customers to slash spending by up to 35% in the US if oil prices average $60/barrel, while investment firm Evercore says operators sought over 30% of cost concessions for oil services due to oil prices halving since June.
Evercore analyst James West described operators’ actions as a “pricing knife fight” in a note to investors on April 14.
“Operators have been racing to cut pricing in an effort to minimise production costs as low commodity prices have rendered many plays uneconomical,” West said.
Subsequently, Halliburton blamed the downturn for its $823 million after-tax (or $0.97 per diluted share) in company-wide charges during the first quarter of 2015 related to asset write-offs, inventory write-downs, impairments of intangible assets, severance costs and other charges.
The company also recorded a Venezuela currency devaluation loss of $199 million, or $0.23 per diluted share, as the country derived roughly 96% of its export earnings from oil revenues.
Halliburton also booked Baker Hughes acquisition-related costs of $35 million after-tax. Reported loss from continuing operations was $639 million, with reported operating loss of $548 million for Q1 2015.
“Industry prospects will continue to be challenged in the coming quarters, and visibility to the ultimate depth and length of this cycle remains uncertain,” Lesar said in the quarterly.
“We will continue to manage through this downturn focusing on reducing input costs, protecting our market position, and delivering the superior execution and solutions our customers have come to expect.
“In advance of the pending Baker Hughes acquisition, we have made the decision to preserve our global delivery infrastructure through the downturn, which is having a negative impact on our operating margins but will allow us to realise cost synergies after the close.
“We continue to look beyond the cycle and invest in capital and strategic programs to maintain the health of the franchise and to emerge even stronger when the industry recovers.”
He maintained the company’s belief that the long-term prospects for the industry remained “sound”, and was excited about the pending Baker Hughes transaction which he said would significantly enhance Halliburton’s growth potential.
North America experienced an unprecedented decline in drilling activity during the first quarter, which drove pricing pressure and margin compression across all product lines.
This drove Halliburton’s first quarter revenue down 9% and operating income down 54%, year-over-year, compared to a 21% reduction in the US land rig count.
“Activity has dropped approximately 50% from the peak in late November and we expect to continue to see pricing pressure for our services until the rig count stabilises,” Lesar said.
“Our international business has been more resilient than the domestic market, with the international rig count down 9% from the peak last July.
“We continue to anticipate headwinds across all of our international regions this year as operators reduce their budgets. Lower commodity prices are influencing our customers to re-evaluate asset economics and defer new projects.”