Wednesday, February 11, 2015

Halliburton Announces Massive Job Cuts As Industry Braces For Persistent Weakness In Oil Prices

This article is an update to our previously published work which can be found here and here.

On Tuesday, Halliburton (NYSE:HAL) announced that it will eliminate between 5,200 and 6,400 jobs. This represents 6.5% to 8% of the company's total 80,000 workforce. The cuts also include around 1,000 jobs the company said it will eliminate in the Eastern Hemisphere. The job cuts are a direct result of the plummeting oil prices which have fallen by more than 50% since July, 2014 and are not related to Halliburton's $35 billion merger with rival Baker Hughes (NYSE:BHI), Halliburton said in a statement. The company said that the eliminations will impact all business units.

The size and timing of the cuts was highlighted in the previous articles. The significant drop in oil prices has forced oil and gas producers to cut their capital spending. Companies representing 30% of the U.S. oil production have already reduced their 2015 budgets by an average of 24%, and more companies are announcing budget cuts every day. Pioneer Natural Resources (NYSE:PXD) was the latest to announce capital expenditure cuts today. As much as 90 rigs are being removed from shale oil and gas drilling every week while service fees, which have already fallen by nearly 15% in the prior months, could drop further. That's bad news for oilfield services companies.

Halliburton is following in the footsteps of Baker Hughes, Schlumberger (NYSE:SLB) and Weatherford International (NYSE:WFT) who have laid out plans to slash 9,000, 7,000 and 8,000 jobs respectively. A number of other companies in the energy space, including Oil States International, Suncor Energy and Helmerich & Payne have also announced plans to eliminate at least 1,000 jobs each. Overall, including Halliburton's recent cut, service providers as well as oil and gas producers have announced plans to eliminate more than 30,000 jobs, based on data from February 2 report from Goldman Sachs's Brian Singer emailed to me and including latest numbers from Halliburton and Weatherford. With persistent weakness in oil prices which could average $55 a barrel this year and improve slowly to $73 a barrel by 2020, as per IEA's estimates, the energy industry will likely witness additional job cuts in the future.