Via Ryan Holeywell, FuelFix:
HOUSTON — Halliburton officials say they’re bracing for a tough year as falling oil prices are prompting their customers to slash their budgets.
As oil prices have fallen more than 50 percent from their summer peaks, Halliburton’s customers have cut their budgets by an average of 25 percent to 30 percent, putting pressure on the oil field services company to reduce its rates, company officials said Tuesday.
“The long-term fundamentals of our business are still strong,” Halliburton president Jeff Miller said on a conference call to report fourth quarter earnings. “But it’s clear we’re heading into an activity downturn.”
Company leaders say they’re responding to that pressure by reducing pricing across its product lines as its customers struggle to rein in their expenses. The company expects to see profit margins decline in the first two quarters of 2015 before stabilizing in the second half of the year. Company leaders say they’re responding to pressure from producers for cheaper rates and will fight to maintain their market share.
“I can tell you we will do what we have to do,” Halliburton CEO David Lesar said. “We know what buttons to push and levers to pull, and we will do so.”
While the company did not offer specific figures on possible layoffs, it suggested its North American workforce could face significant job cuts. Miller referenced the company’s previously announced restructuring of its Eastern Hemisphere workforce — which will result in 1,000 layoffs. “We will make similar adjustments here as well,” he said, referring to North America.
Miller also remarked that Halliburton expects headcount adjustments in line with that of its primary competitors.
Competing oil field service company Baker Hughes, in the process of being acquired by Halliburton, announced 7,000 layoffs Tuesday. Oil field giant Schlumberger said last week it will cut approximately 9,000 employees.
Emily Mir, a Halliburton spokeswoman, declined to elaborate on how many job cuts Halliburton has planned. “No details to share at this time,” Mir said in an email.
Lesar said the company faces uncertainty about the market for its business, since some exploration and production companies have repeatedly revised their 2015 capital budgets in just the last few months. He said it would take two quarters for the company to understand the extent to which it will be affected by the drop in oil prices that is slowing upstream activity.
He noted that Halliburton’s steps to cut prices for its customers wouldn’t directly translate into job losses. But a lower volume of activity could affect the size of Halliburton’s workforce.
The company’s comments come as the number of land rigs operating in the U.S. has dropped by nearly 14 percent in just two months.
“What is creating even more uncertainty for the service industry is that many customers have continued to revise down their … budgets,” Lesar said. “This makes it difficult to size your business in today’s U.S. market, in particular, because it is such a fast moving target.”
Company leaders did not offer new details about the progress of its Baker Hughes acquisition but reiterated that they still expect the deal to close in the second half of the year.
“We remain committed to seeing this deal through despite the … headwinds facing the industry,” Lesar said on the call.
Halliburton reported a 13.6 percent boost in it fourth quarter earnings, despite financial pressure on the company driven by falling oil prices.
The company reported $901 million in earnings, or $1.06 per share, up from $793 million, or 93 cents, in the October-December quarter of 2013.
“I am very pleased with our results for the fourth quarter and for the full year,” Lesar said in a statement.
But Halliburton acknowledged the challenges ahead for the company as it faces pressure from exploration and production companies reeling from a more than 50 percent drop in the price of oil from its peak this summer.
The company took a $129 million restructure charge in the fourth quarter as a result of expected declines in activity. The company said most of those charges are related to severances and asset write-offs in the Eastern Hemisphere. “We delivered an excellent 2014, but it is clear that 2015 will be a challenging year for the industry,” Lesar said.
“We are confident that we have the right people, technology, and strategies in place to outperform throughout this cycle too, and emerge as a stronger company,” Lesar added.
In the fourth quarter, Halliburton also incurred $19 million in costs related to its pending acquisition of Baker Hughes.
The company’s revenue also increase 14.8 percent, compared to the same period a year ago, to nearly $8.8 billion.
For the year, the company’s revenue was up 11.8 percent to $32.9 billion — a record, Lesar said — and its earnings were up 64.7 percent to $3.5 billion.
Lesar expressed confidence in the company, despite the challenges facing Halliburton.
“We’ve been through asbestos, we’ve been through Macondo, we’ve been through the Iraq war,” Lesar said, referring to a series of expensive and high-profile controversies involving the company. “None of those distracted us from making sure our business franchise remained strong.”