By Loukas Dimitriou
Halliburton was founded in 1919 and is one of the world’s largest providers of products and services in the oil and gas industry. It serves the industry from the location of hydrocarbons and managing geological data, to drilling and formation evaluation, well construction and completion, and optimising production through the life of the field. The company has two headquarters located in Houston, Texas and Dubai, UAE (Halliburton, 2015).
Halliburton have announced a significant amount of job cuts recently, however what is the reason behind it?
Between October 2014, and April 2015, crude oil prices dropped by a mammoth 35%, from $85.82 per barrel to $55.74 per barrel. The number of active oil rigs also reacted to the price drop as illustrated in the graph below. During the same period, the number of active crude oil rigs dropped 54%, or from 875 to 734.
US upstream companies that produce oil could see lower production growth as a result of reduced drilling. This reduced activity and falling prices has most certainly depressed oilfield service companies such as Halliburton, as upstream companies push for lower contract rates from oilfield services (Yahoo Finance, 2015).
However the past few days saw quarterly reports from Halliburton Co coming up with significantly better results than what they expected, even as oil prices plummeted throughout the first quarter. This can be primarily attributed to the cost cutting initiatives and proceeds from backlog contracts. On a different note the company revealed that their job cuts would be deeper than initially expected (Yahoo Finance, 2015).
Halliburton’s senior vice president of finance, Christian Garcia, noted in a conference call with analysts that the company has cut approximately 9,000 jobs, an equivalent of more than 10% of its global headcount. In February the estimates were different as the company said it would cut 5,000 to 6,000 of its global headcount, or 6.5 to 8%.
The company in a recent press release stated they expect oil prices to remain weak throughout 2015. This, together with associated cutbacks in rig counts, is going to hinder their 2015 result.
Halliburton is in the process of acquiring Baker Hughes in a $34.6 billion deal, but both companies say the job cuts are related to market conditions rather than the merger.
Halliburton President Jeff Miller said in a conference call on the 20th of April that normally they would have reduced their operating cost structure more than what they have done currently, but in anticipation of closing the Baker Hughes acquisition later this year, they want to preserve their underlying service delivery platform (Houston Business Journal, 2015).
“We know we have best-in-class service delivery, and keeping this platform in peak condition will allow us to realise our transaction synergies post-close. This means that we are not cutting as deep as we might have done so otherwise”.
In other words they will be “forced” to cut down on jobs instead of lowering their operating costs. Should the oil & gas professionals be worried? Are profit margins placed over employees? Understandably the acquisition of Baker Hughes had been initiated before the oil prices dropped, however it might be more considerate to postpone it. Even though Halliburton has come up with a positive number as oil prices plummeted, the truth is it came to the expense of their employees. They stated that the acquisition is the best thing to do in the long run, but they also stated that they expect oil prices to remain low. Does that mean further job cuts down the line? Is the long term solution a short term setback?
Loukas Dimitriou is a Mechanical Engineer working for OneSubsea, a Cameron & Schlumberger Company in the UK . A recent graduate from Lancaster University, he has joined our team in May 2015 as Chief Columnist. He has previously worked within the renewable energy industry, where he discovered his enthusiasm for the energy sector. He is a member of the Institution of Mechanical Engineers (IMechE) and the Mediterranean Institute of Hydrocarbons Technology (MIHT).
Email: [email protected]
Follow @lou_loukas
References
Halliburton. (2015). Retrieved from http://www.halliburton.com
Houston Business Journal. (2015). Retrieved from Halliburton Baker Hughes Cut Hundreds Of Jobs In Texas: (http://www.bizjournals.com/houston/news/2015/04/27/halliburton-baker-hughescut-hundreds-of-jobs-in.html?ana=yahoo&page=2
Yahoo Finance. (2015). Retrieved from Crude Oil Rigs Continued Slide: http://finance.yahoo.com/news/crude-oil-rigs-continued-slide-130650593.html
Yahoo Finance. (2015). Retrieved from Oil Gas Stock Roundup Schlumberger: http://finance.yahoo.com/news/oil-gas-stock-roundup-schlumberger-134701013.html
