Schlumberger, the world’s biggest oilfield services company, is to cut 21,000 jobs — roughly a fifth of its workforce — as the collapse of US shale production causes demand to dry up and sends its revenue into freefall.
The company, hit hard by the seize-up of North American drilling activity, said customers had “dramatically cut back” spending, sending revenues in the region down 58 per cent in the second quarter compared with a year earlier. This left overall revenue down 35 per cent.
The group reported $3.7bn in impairment charges, including $1bn of severance costs.
“This has probably been the most challenging quarter in past decades,” said Olivier Le Peuch, chief executive. “This speaks volumes about an industry confronted with historic oil demand and supply imbalances caused by demand destruction from the global Covid-19 containment effort.”
Schlumberger reported a net loss of $3.4bn, dragged lower by the impairment costs, and total revenue of $5.3bn for the quarter, down 28 per cent from the previous quarter.
The grim results round out the poor outlook delivered by the big three international oilfield services providers, after Halliburton and Baker Hughes reported earlier in the week.
The US crude benchmark plunged into negative territory in April as the coronavirus emergency cut demand by as much as a third and a price war between Russia and Saudi Arabia sent supply soaring. With prices too low to turn a profit, US producers were forced to stop drilling and curtail supply.
Services groups keep producers operating by doing everything from maintaining roads to drilling wells and installing production equipment. They tend to be hit particularly hard in downturns as oil companies cut expenditure and put new work on hold.
Job cuts have become a common theme in the sector as companies seek to slim down and reduce costs.
“I think the job cuts is par for the course in the oilfield service sector, and quite frankly the entire energy sector,” said Jen Rowland, an analyst at Edward Jones. “Oilfield services companies like Schlumberger can’t control their customer activity but they can control costs so expect them to wring out as much cost as possible.”
Schlumberger wants to remove $1.5bn in costs as part of a restructuring programme. It said it had achieved 40 per cent of that during the second quarter, indicating more cuts are in the pipeline.
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The company, which employed 105,000 people at the end of last year, did not say where the job cuts would be made. It said in the first quarter it had reduced its workforce in North America by close to 1,500.
While oil prices have bounced back to about $40 a barrel and activity has begun to tick up, operators remain cautious about the speed of any recovery. Baker Hughes warned this week that a fresh surge in coronavirus cases could send economies back into lockdown and crush demand again.
Analysts and producers maintain the US may never return to the 13m barrels-a-day production levels seen early this year, and that any recovery will take time.