Page 10 - NorthAmOil Week 12

NorthAmOil INVESTMENT NorthAmOil
Leading oilfield
service firms unveil
capex cuts
US
SCHLUMBERGER and Halliburton – the top two leading oilfield service firms globally – have both said they are cutting spending in response to the collapse in crude prices. The announce- ments come in the wake of a number of explora- tion and production companies also announcing reductions in spending and activity. One area in which this is particularly prominent is shale drilling, which can easily be scaled down or up depending on market conditions. Demand for services such as hydraulic fracturing is predicted to fall considerably as a result of the rout.
Schlumberger said it would cut spending by 30% compared with last year’s levels. The company has indicated that it expects a rapid reduction in active drilling and fracking activity, and has estimated that the number of active rigs could fall to levels last seen during 2016, at the worst of the last downturn.
This comes after Schlumberger already out- lined an aggressive cost-cutting strategy for its North American operations earlier this year.
Meanwhile, Halliburton’s chief financial officer, Lance Loeffler, said in a webcast that his company was accelerating its cost-cutting and would significantly reduce spending below its original $1.2bn budget for this year.
A new spending target has not yet been dis- closed but according to Loeffler, it is testing sce- narios, including a 60-65% reduction in some areas of the oilfield services sector. He noted a reduction to $800mn during the last downturn, suggesting this could be a potential target.
However, Halliburton’s strategy will be dif- ferent this time from the approach it adopted during the last downturn, when it opted to cut its prices in order to retain market share. This time it intends to focus on returns and free cash flow, according to Loeffler, who said one reason for this was that financing from Wall Street had dried up for the oil and gas industry.
“Thereisnomorelifeline,”hesaid.
Indeed, the pressure from investors to focus on returns against a backdrop of diminished availability of capital stands to affect producers and service providers alike, potentially making this downturn far more challenging to navigate. The nature of the downturn itself – with demand collapsing as supply is set to surge – presents additional difficulties.
“The industry is facing an unprecedented dual impact on demand and supply side that none of us have witnessed over our profes- sional lifetimes,” Loeffler said. “All options are
Halliburton’s strategy will be different this time from the approach it adopted during the last downturn.
being considered,” he added.
This comes after Halliburton had already
been cutting costs by idling equipment and lay- ing off workers. Last week, it said it would fur- lough 3,500 workers for two months.
Indeed, consultancy Rystad Energy warned this week that over 1mn jobs in oilfield services could be cut in 2020, with shale services forecast to account for most of the reductions.
Rystad estimates that more than 5mn people are employed in oilfield services globally, and that contractors could reduce their workforce by at least 21% this year. The consultancy attrib- utes13%ofthistooil-price-drivencutsandthe remaining 8% to measures taken by contrac- tors to reduce the spread of the coronavirus (COVID-19) at their sites.
“Low oil prices are likely to persist in 2021 and could lead to further workforce reduc- tions. But as we move into the second half of 2021, with better market fundamentals and a fading COVID-19, recruitment is likely to pick up in the shale sector and from 2022 will also kick off in the offshore sector,” Rystad’s head of oilfield service research, Audun Martinsen, said in a statement.™
Demand for services such as hydraulic fracturing is predicted to fall considerably as a result of the rout.
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w w w . N E W S B A S E . c o m Week 12
26•March•2020