Layoffs and pay cuts loom as Schlumberger, the largest oilfield service company in the world, plans to cut up to 30 percent from its budget amid crumbling oil prices and the economic effects of the coronavirus pandemic.
Schlumberger CEO Olivier Le Peuch reported the budget cuts during a Tuesday morning fireside chat at the Scotia Howard Weil Energy Conference in New Orleans where he also confirmed accelerated restructuring efforts in the North American market that are expected to include layoffs and compensation reduction for employees.
The oilfield service giant spent $1.7 billion on capital expenditures during 2019, U.S. Securities and Exchange Commission records show. The magnitude of the 2020 budget cuts, Le Peuch said, depend on changes to customer plans. A full 30 percent cut would leave the company with a $1.2 billion capital expenditure budget for the year.
Le Peuch said almost all of the remaining capital expenditure budget would be directed to the company’s international operations, which accounted for for roughly 80 percent of the company’s free cash flow.
Schlumberger is planning the budget cuts as Chevron, Shell, Total and numerous other companies in the energy industry are cutting billions of dollars from their budgets in response to rapidly falling oil prices.
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A price war between Russia and Saudi Arabia has exacerbated a global supply glut while the coronavirus outbreak has lowered global demand. West Texas Intermediate crude oil is trading around $23 per barrel, a price not seen since February 2002.
During his presentation, Le Peuch said Schlumberger’s international operations have been impacted by the coronavirus outbreak but noted that its manufacturing operations in China are already returning to their pre-crisis levels.
There are currently 772 drilling rigs in operation across the United States but Le Peuch said Schlumberger believes that the U.S. rig count could potentially fall to levels last seen during the 2016 crude oil price downturn. During the low point of May 2016, there were only 404 active drilling rigs in the United States, according to figures from the Baker Hughes Rig Count.
Headquartered in Paris with its principal offices in Houston, Schlumberger is the largest oilfield service company in the world with more than 105,000 employees in 120 nations. Founded in 1926, the company posted a $10.1 billion loss on $32.9 billion of revenue in 2019 due to write downs for two past acquisitions and weaker demand for the hydraulic fracturing services in North America.
