Baker Hughes to lay off 7,000 after record-breaking quarter

HOUSTON — Baker Hughes said Tuesday it will lay off 7,000 mostly in the first quarter of 2015, amid a crude oil price slump and drilling slowdown it expects to worsen in the next quarter.

The announcement came shortly after the oil service company reported that its net income for the three months ending Dec. 30 rose to a record high of $663 million, or $1.52 a share. After adjustments to exclude deconsolidation of a joint venture, the company reported an earnings per-share of $1.44.

In the same period of 2013, Baker Hughes reported $248 million in profit.

The layoffs are an about 11 percent cut to the 62,000-plus employees Baker Hughes said it employs globally on Tuesday. The company said it expects to book a one-time charge in the next period in the range of $160 million to $185 million for severance, and said it is reviewing its facilities for possible closures.

“This is really the crappy part of the job, and this is what I hate about this industry frankly,” said Martin Craighead, Baker Hughes Chairman and CEO told analysts on a conference call discussing the results. “This is the industry, and it’s throwing us another one of these downturns, and we’re going to be good stewards of our business and do the right thing. But these are never decisions that are done mechanically.”

Baker Hughes’ fourth quarter was exceptional by almost any other measure. The company’s reported adjusted earnings per share of $1.44 soundly exceeded analysts’ expectations of about $1.07 per share. Across 2014, the company said it saw $1.71 billion in net income, compared to $1.1 billion in 2013.

Several analysts on the call praised CEO Craighead’s performance during a question and answer session. In a note to clients, energy investment investment bank Tudor, Pickering, Holt & Co. LLC called the past months “one heck of a quarter.”

The company’s most recent quarter was led by its North America division, which posted a record revenue of $3.3 billion.

But while Baker Hughes said that drilling activity rose onshore in North America during the early part of the quarter, the company said the drilling decline began to affect business around the holidays.

“The further we look beyond the quarter, the greater the lack clarity,” said Kimberly Ross, Baker Hughes’ CFO who also spoke on the call. “The average U.S. rig count in the first quarter is projected to be approximately 15 percent lower than the fourth-quarter average. Additionally, we are seeing a growing inventory of wells drilled but not completed as some customers are electing to delay completion and defer production.”

Rig counts — a measure of how many new wells are drilled and a rougher measure of the business oil service companies can expect to see — have already been dropping quickly. The latest weekly data, compiled by Baker Hughes, showed producers idling 74 rigs, the biggest one-week decline in more than six years.

Baker Hughes executives didn’t go into great detail about the company’s future. In November, rival oil service firm Halliburton said it would buy Baker Hughes for $34.6 billion in one of the biggest oil field service mergers recorded.