The worsening oil bust will force Schlumberger to cut additional jobs in the fourth quarter as the company braces for extended pain across the industry that’s unlikely to subside for at least another year, CEO Paal Kibsgaard said in a conference call with investors Friday.
“The likely recovery in our activity levels now seems to be a 2017 event,” he said.
Despite earlier predictions from the world’s largest oil field services company previously that market was close to reaching the bottom, Schlumberger now expects the coming months to be worse than expected following a fresh plunge in oil prices in the third quarter coupled with increasing pressure from oil companies for deeper discounts and a renewed collapse in the U.S. rig count.
The world’s largest oil field services provider has decided to “proceed with further overhead and capacity reductions,” including additional headcount reductions, Kibsgaard said. That decision will likely affect Houston-area employees where the company operates its U.S. headquarters.
Kibsgaard said the company will post a restructuring charge in the fourth quarter, which will include severance pay for laid-off workers. Schlumberger took a $390 million pre-tax charge in the second quarter after cutting its headcount by 11,000 employees, bringing the total number of job cuts to 20,000 across the globe, or about 15 percent of its workforce.
Kibsgaard did not say how many additional jobs are on the chopping block.
“Our ability to respond to higher E&P investment in oil field activity in 2017 will be improved by protecting our financial strength in 2016 rather than carrying excessive costs and inefficiencies as we await the recovery of the oil field services market,” Kibsgaard said.
Schlumberger also plans to restructure its global manufacturing and distribution network as part of an ongoing transformation program, including consolidating sites into clusters in central locations and in the field. Its not clear how that decision will affect the Houston area.
Kibsgaard said the market has underestimated how long a recovery will take.
The nagging oil slump has damaged oil companies’ financial strength and investment appetite, Kibsgaard said, which means many will likely adopt conservative spending plans for next year, even if crude prices do begin to gradually rise.
Exploration spending has been “basically eliminated,” he said, and financially pinched oil companies spooked by the downturn will wait until crude prices appear stable before agreeing to invest again. Even then, it will take a while for that spending to translate into increases in oil field activity, further delaying the recovery for beleaguered oil field services companies.
The fourth quarter will likely be even worse than the third, as companies continue to throttle activity in the oil patch. Beyond that, the picture gets murkier, he said. Exploration and production companies have indicated that they plan to cut spending next year, but they haven’t finalized their budgets, making it difficult for services firms to predict how much further activity could fall.