Halliburton Sees as Much as 8% Global Workforce Layoffs

Halliburton (NYSE:HAL) shares dropped as much as 3% on Tuesday after it said it anticipates layoffs in the range of 6.5% to 8% amid plunging global oil prices.At the highest end, that would mean eliminating about 7,000 jobs.

“We value every employee we have, but unfortunately we are faced with the difficult reality that reductions are necessary to work through this challenging market environment,” the company said in a statement.

A spokesperson for Halliburton said no layoffs have happened or are planned as a result of the pending acquisition of rival Baker Hughes (NYSE:BHI), which was announced at the end of last year.

Oil Field Services ‘Brain Drain’

The cuts from Halliburton complete a trifecta of sorts, and come after two other major players in the industry also announced a slim down in their workforces. On the heels of their fourth-quarter results, Baker Hughes and Schlumberger (NYSE:SLB) in January announced 7,000 and 9,000 job cuts respectively citing lower oil prices and anticipation of lower exploration and production over the next year.

But the cuts are likely not over yet.

“If anything, there’s more cutting to do,” Stewart Glickman, group head for energy at S&P Capital IQ said. “(These companies) are North America focused and a lot of where you’re seeing cuts is in North America shale because it’s much easier to stop work on a shale well rather than in deep water or oil sands.”

Glickman went on to say that the cuts – and whether there are definitely more to come – will depend on how long oil price weakness continues.

“This is absolutely the last thing you want to do because what happens is there’s an influence of brain drain. You’re not just affecting lives by layoffs, but you’re losing the knowledge base,” he said.

He explained it this way: When companies, especially energy heavyweights, lay off too many people and the market turns around – in this case, when oil prices make a U-turn and begin to pace higher – the companies will have to re-hire the lost workers, and those new workers won’t necessarily be on the same point on the learning curve.

So what does it mean for the still-booming shale revolution in America? Well, Glickman said it goes back to the question of how long companies have to cut before prices begin to recover. He cited a report by Platts, which indicated of all the companies that have reported fourth-quarter results have said they plan to cut spending by one third, but grow production by 16% due mostly to the over-drilled wells from the last 12-18 months.

“It’s like trying to slam on the brakes on an icy road,” Glickman said. “It’s going to take longer than people might expect to get supply back in line. If demand could magically materialize to absorb supply, we wouldn’t be in this mess.”

He said the whole problem goes back to the ease of shale drilling, which takes a matter of months for about a year’s worth of production. He said it’s much easier to let go of shale production for a while, and then get back into it when the market recovers, than it is to give up deep water or oil sands production, which takes seven to ten years to drill before the first production.

“You’ll continue to spend through the weakness because you’re looking at ten years up front for capital costs, and longer run benefits…timing for cash flow is really important,” Glickman said. “It’s all about expectations. Once the upstream customers have expectations prices will be stable to up, they’ll open their pocketbooks again, and these companies will start hiring.”

Global Oil Supply Glut

The announcement from the world’s second-largest oil field services company comes as worldwide oil prices have hit multi-year lows on the back of a glut in global supply due in part to weakening demand, and increased supply thanks to U.S. shale producers.

In a note to clients on Monday, Citigroup (NYSE:C) noted the drop in oil prices might not have actually reached a bottom as so many have predicted. The bank said it sees prices dropping as low as $20 per barrel.

NYMEX crude snapped a three session win streak, and settled just over the psychologically significant $50 per barrel mark at $50.02, down 5.37% for the session.

The commodity was hammered after a report from the International Energy Agency warned the persisting oversupply would continue in the near-term. The IEA also noted stockpiles from nations in the Organization for Economic Cooperation and Development (OECD) could near 2.83 billion barrels by the middle of this year. That prediction comes as the IEA sees demand from OPEC nations holding firm at 29.4 million barrels a day, and as U.S. shale producers look to pause.