Revenue at the Houston-based oil services firm during the second quarter fell 35% to $5.4 billion compared with the same period a year ago. Its North America operations fared the worst, with revenue down nearly 60% to $1.2 billion compared with a year ago. At international operations, revenue fell 24% to $4.1 billion.
Severance payments to workers it is letting go amounted to around $1 billion, part of $3.7 billion in impairment charges the firm incurred in the second quarter. The firm still generated $465 million in free cash flow.
Schlumberger is making efforts to “reorganize” itself into a “leaner and more responsive company that is better aligned with our customers’ workflows,” it said in an earnings call this morning. That included combining 17 product lines into four divisions, streamlining its management structure, and shedding around one-fifth of its workforce.
Looking ahead to the third quarter, chief executive Olivier Le Peuch said he expects revenue to remain roughly flat, with a potential modest increase in the part of its North America business focused on “completing” oil wells (preparing them for oil extraction) that have been drilled by injecting water, sand and chemicals, a process known as fracking.
“Oil demand is slowly starting to normalize and is expected to improve as government measures support consumption,” Le Peuch said. “However, subsequent waves of potential COVID-19 resurgence pose a negative risk to this outlook.”
Shares of the firm rose slightly not long after results were posted, a sign that analysts had expected worse. Widespread cost-cutting at oil firms has become the new norm as producers reign in spending on drilling and new production to focus on maintaining existing output.
As many as 55,000 of the company’s 100,000-strong workforce (as of last year) were working remotely during the pandemic, Le Peuch said.
Schlumberger wasn’t the first oil services company to report bruising second-quarter results. On Monday Halliburton
On Wednesday rival Baker Hughes
Oil services firms perform many of the industry’s necessary but thankless tasks: maintenance of oil wells, preparing (“completing”) freshly drilled wells for oil production, and drilling for oil. Many of these activities are concentrated in the side of the oil industry focused on new oil production — the same segment of the industry that oil producers have cut back on first. Halliburton said this week it expected spending by customers of oil services firms in North American to fall by half this year compared with 2019.
Compared with internationally, spending cutbacks in North America have been greatest. After years of splurging on new equipment to drill ever greater numbers of oil wells across states like Texas, New Mexico and North Dakota, banks and other lenders began enforcing stricter capital discipline last year. The pandemic accelerated that shift to tighter capital discipline ten-fold. Many observers now anticipate that output from the U.S. shale oil sector will remain at current levels — around 11 million barrels per day, down from the all-time peak last year of close to 13 million barrels per day last year — for the foreseeable future, with investment recovering only enough to sustain output rather than lift it to new heights.
Employment in the oil and gas sector has fallen sharply as a result, with oil services companies bearing the brunt of it. Earlier this month the Petroleum Equipment and Services Association (PESA), an oil services trade group, found that employment in the oil-field services and equipment sector fell by more than 8,600 jobs in June alone, bringing total job losses due to pandemic-related demand destruction to nearly 94,000.