Energy

Schlumberger Outlines More Layoffs Ahead of Cameron Merger

Jon C. Ogg

Published: December 1, 2015 1:20 pm

Last Updated: January 13, 2020 4:36 pm

Schlumberger Ltd. (NYSE: SLB) is the king of oilfield services. Despite a transformation that already is underway, more layoffs are headed to Schlumberger’s workforce. This of course also comes with implications in the pending acquisition of Cameron International Corp. (NYSE: CAM).

On December 1, 2015, Schlumberger announced that it will further reduce its workforce. The number of cuts was not specified in the SEC filing, but the company said that the layoffs are in light of expected reduced activity for 2016 and to streamline its support structure.

As a result of these actions, Schlumberger currently expects to record a pretax restructuring charge in the fourth quarter of 2015 that is estimated to be approximately $350 million.

Another issue is that Schlumberger’s presentation at the at Cowen’s 5th Annual Ultimate Energy Conference is taking place the same day. Patrick Schorn, President of Operations at Schlumberger, has a presentation that is dealing with much worse than $70 oil as was seen a year ago. While these are from different portions of the presentation, Schorn talked more specifically about the general conditions, the move with Cameron and the layoffs tied to the transformation:

Last year I described what the fall in the price of oil to near $70 barrel would mean for the oil and gas industry in general, and for the service industry in particular. Today, at nearer $40 per barrel, I’d like to share some further thoughts with you as we face a second consecutive year of falling upstream investment for the first time since the mid-1980s.

However, the latest leg down in activity has led us to again evaluate our staffing levels against expected activity. Following which, we will further right size the organization based on the activity outlook for 2016 and streamline our support structure. This will result in a restructuring charge currently estimated at $350 million in the fourth quarter.

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Three main points were outlined. The first was how Schlumberger has outperformed a difficult market that has required a careful balance between maintaining margins and protecting market share. The second issue is Schlumberger’s transformation program to extract faster and more widespread benefits than the company originally expected. Third is the general business, which also includes the planned Cameron transaction.
Schorn also addressed the view of supply and demand in the oil patch and where trends are headed next. He did hint that a faster recovery will ultimately arrive versus what many pundits are expecting. The presentation said:

It is clear that the current downturn is driven by supply, due to high levels of marketed supply from Middle Eastern OPEC together with a dramatic increase in production from unconventional resources in North America. This combination has outstripped growth in demand and raised stocks to record levels, driving prices significantly lower and cutting industry investment to unsustainable levels that are already leading to flattening production. Once a second year of falling investment takes hold, we expect flattening production to become falling production as decline rates dominate …

There is however one major difference between the crash of 1986, and that of today. Thirty years ago, the rapid development of new sources of conventional oil production in the North Sea, Mexico and Alaska led to OPEC spare capacity of more than 10 million bbl/d. Today, spare capacity is about 3 million bbl/d as marketed supply reduces available spare capacity.

In spite of a very different crude oil supply mix with the world’s largest consumer now capable of meeting its needs to a much greater extent than at any time in the past 30 years, we believe that two consecutive years of reducing investment will lay the foundations for a faster recovery than some observers are suggesting.

Schlumberger shares were last seen up 0.55% at $77.61, versus a 52-week range of $66.57 to $95.13. Cameron shares were last seen up 0.57% at $68.68, versus a 52-week range of $39.52 to $71.22.

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