With the price of crude oil plummeting, drilling activity has slowed way down. As a result, both Halliburton and Baker Hughes have had no choice but to announce a layoff of literally thousands of workers. Since June of last year, the price of oil globally has declined nearly 60%, hitting five-year lows. At the same time, global demand is moderate and production growing, causing excessive supply that has forced a scale back on spending by oil producers.
While Jeffrey Miller, chief operating officer with Halliburton stated on a post-earnings call that the number of workers being laid off would be comparable to that of the main competitors, no specific number was mentioned. Currently, Halliburton employees over 80,000 workers and during 2014’s fourth quarter, 1,000 jobs were eliminated from the eastern Hemisphere operations.
As for Baker Hughes, which Halliburton is acquiring in a deal worth close to $35 billion, approximately 7,000 workers laid off. After the job cut announcement was made, shares of both companies dropped roughly 2% during early morning trading. With this, earlier gains reported by the companies during last year’s fourth quarter of better than expected results, was reversed.
The layoffs come only days following an announcement by Schlumberger NV, an industry leader, in which they too said about 9,000 jobs would be cut. Combined, it becomes apparent that activity in drilling has slowed tremendously over the last several months. Last September, Baker Hughes, which employed more than 61,000 workers, said that closing its facilities was being considered.
As stated by Dave Lesar, chief executive with Halliburton, in just the past 60 days the count for US land rigs dropped to 250, which equates to roughly 15%. About 50% of revenue for Halliburton and Baker Hughes comes from North America, which is expected to do much worse during the oil slump than other countries around the world.
Included in the statement, Baker Hughes noted that most of the reduction of workforce would occur sometime in the third quarter, a time when a one-time severance charge up to $185 million will need to be booked. Halliburton also took a big hit in the form of a restructuring charge of $129 million during the fourth quarter in an effort to soften the impact of declines in activity, as predicted.
In closing, Lesar stated that Halliburton remains committed to finalizing the acquisition of Baker Hughes that compared to when the deal was first announced last November, it is even more compelling now. He added that the company would not become distracted while integrating the two operations and that market share could be gained, this in response to an assertion made by Schlumberger.