Last quarter, Paal Kibsgaard, the Chairman and Chief Executive Officer the world's largest oilfield services company, Schlumberger warned that "the decline in global activity and the rate of activity disruption reached unprecedented levels as the industry displayed clear signs of operating in a full-scale cash crisis. This environment is expected to continue deteriorating over the coming quarter given the magnitude and erratic nature of the disruptions in activity." He then promptly fired 8,000 workers in the first quarter, and said that he is not expecting a meaningful recovery in the company’s activity until sometime next year.
He was right, because while the oil industry was touted as experiencing a substantial rebound since then, this appears to not have been the case for the energy services giant. This was confirmed in the results reported moments ago by Schlumberger which announced another unexpected loss or $2.16 billion, or $1.56 cents a share, compared with a profit of $1.12 billion, or 88 cents, a year earlier.
As Bloomberg notes, as the downturn dragged on, executives at the world’s largest oilfield services provider have had to push back their expectations for an improvement in drilling and fracking work, with crude prices remaining more than 50 percent lower than their peak in 2014.
As a result, the tone of Paal Kibsgaard this quarter was even gloomier than in Q1:
In the second quarter market conditions worsened further in most parts of our global operations, but in spite of the continuing headwinds we now appear to have reached the bottom of the cycle.
Or so he hopes.
On a pro forma basis, revenue decreased 12% sequentially with North America falling 20% due to the Canadian spring break-up and a 25% drop in the US land rig count, while international revenue decreased 9% due to weaker activity, continued pricing pressure, and a large-scale cutback in our operations in Venezuela. However, our wide geographical footprint and broad technology portfolio continued to offer unique advantages that helped to mitigate these effects.
And the real story behind the recovery, or lack thereof:
As a result of the weakness in activity that will persist through 2016 as expected, we have made another significant adjustment to our cost and resource base, including the release of more than 16,000 employees during the first half of 2016 and a further streamlining of our overhead, infrastructure, and asset base. This has led to $646 million in restructuring charges in the second quarter for the reduction in our workforce, as well as a non-cash $1.9 billion impairment charge for fixed assets, inventory, and multiclient seismic data. We also recognized $335 million in merger and integration charges relating to the Cameron acquisition.
So after firing 8,000 in the first quarter, Schlumberger just laid off another 8,000 workers. It may have been even more because while Schlumberger reported a headcount of 113,000 people at the beginning of this week, in the earnings release it said the company has "approximately 100,000 employees", so it seems that even more cuts could have come in July.
As a result of the ongoing energy recession, Schlumberger, Houston’s largest energy employer as of a month ago, has now eliminated about 50,000 jobs, or a third of its entire workforce, in the two years of the ongoing oil bust according to FuelFix calculations.