Schlumberger CEO: Rebound in Oil Will Take Longer than Many Expect

Schlumberger, the world’s largest oilfield services company, is revising its outlook for a recovery in energy prices, and says it plans to reduce spending, through more layoffs for example, in order to remain profitable.

In July, Schlumberger’s CEO, Paal Kibsgaard, said he expected oil prices to begin recovering by the end of 2015. But in a conference call with analysts on Oct. 16 he said prices may not begin rising until 2017.

“The market is underestimating how long this period is going to take,” Kibsgaard said. “Just the fact that the industry is looking to again reduce investments when we have this significant pending supply impact coming shows we have an increasing challenge.”

He said his company will join the others in cutting costs, including through layoffs, though spokesman Joao Felix said it hasn’t yet decided how many jobs will be lost.

At least one analyst said he expected the layoffs to be significant. “If they are going make a reduction, it is going to be a sizable reduction to lower the cost structure,” energy analyst Rob Desai of Edward Jones Investments told Reuters. “And given the expected decline, 10% is a reasonable number.”

However many jobs are eliminated, Kibsgaard said there was no question the economies are necessary. On Oct. 15 Schlumberger reported that its profit for the third-quarter of 2015 fell to $989 million, 49% lower than the $1.96 billion reported in the same period of 2014.

Already Schlumberger, based in Paris, has cut about 15% of its employees, laying off 20,000 workers globally, since oil prices began to fall from more than $110 per barrel in June 2014 to around $50 per barrel now. The first victims of the decline were U.S. shale oil producers, who often rely on hydraulic fracturing to extract oil. The practice is more expensive than conventional drilling.

Now though, Kibsgaard said, low oil prices are affecting activity in oil fields outside the United States, causing depressed revenues worldwide. As a result, he said, spending on energy exploration has been “basically eliminated” as oil companies wait for prices to stabilize.

Kibsgaard said this means much less work for all oilfield-service companies – not just giants like Schlumberger, but smaller ones, too – which had, like himself, expected stabilization to begin late this year.

One reason for his pessimistic outlook is the persistent depression in the count of oil rigs in the United States. Kibsgaard referred the analysts to an Oct. 16 report by oilfield-services company Baker Hughes that 10 more rigs were idled nationwide in the past week. And even though three more gas rigs were added, the net number of rigs was 787, a 63% drop for its peak in October 2014.

Despite the cost-cutting, Kibsgaard said Schlumberger and other companies with ready cash are staying alert for opportunities to acquire other properties that can enhance profits. For example, on Aug. 26, Schlumberger said it would spend about $12.71 to buy the equipment manufacturer Cameron International Corp.

The deal could benefit not only the merged company but also its customers. A combined Schlumberger-Cameron could streamline its operations and thus reduce expenses. The new entity also could offer bundled services to its customers at prices below what they would have paid by dealing with separate companies for services and parts.

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