Oilfield services provider Baker Hughes Co said on Monday it will take a $1.5 billion charge to its first-quarter earnings, write down the value of its oilfield business and slash this year’s capital spending by 20%.
Oil and gas producers have cut 2020 spending by about 30%, according to data compiled by Reuters, as oil prices have tumbled amid plummeting demand due to the coronavirus pandemic and a global oil glut.
Schlumberger and Halliburton, the two largest oilfield service providers, have chopped spending for the year and taken aggressive cost-cutting measures, including workforce reductions, furloughs and executive pay cuts.
Baker Hughes said falling customer demand had led it to reduce its view of the long-term prospects for its oilfield services and equipment unit, resulting in a $15 billion goodwill impairment charge.
“Baker’s price collapse also caused a triggering event that forced an impairment test of carrying values,” James West, a senior managing director for Evercore ISI, wrote in an email.
Oil drilling and well completions in North America have ground to a halt since prices collapsed, with U.S. drilling rigs dropping by 191 to 602 since early March, according to Baker Hughes. The number of hydraulic fracturing fleets at work was forecast to fall below 200 last week, according to consultancy Primary Vision, down from around 420 last year.
“The uncertainty related to oil demand continues to have a significant impact on the investment and operating plans of our primary customers,” Baker Hughes said in a statement.
Shares of Baker Hughes were down 1.6% to $12.65 in early trading on Monday. They are down roughly 50% on a year-to-date basis.
Restructuring, impairment and other costs will reach $1.8 billion this year, and $1.5 billion will be recorded in the first quarter, the company said. It is scheduled to release first-quarter results on April 22.
Baker Hughes was taken over by conglomerate General Electric in mid-2017 and then divested last year. GE held a 36.7% stake in Baker Hughes, according to securities filings.
Even before prices collapsed, energy companies were cutting their outlooks. Schlumberger last fall said it planned to take a $12.7 billion charge as shale drilling slowed, and Chevron Corp announced a $10 billion charge related to offshore assets in the Gulf of Mexico and its Appalachia shale assets.
Baker Hughes said the restructuring charges are to right-size its operations for anticipated activity levels and market conditions, but did not provide details.
