Houston Business Journal : Oil service firms start laying off
- Employee cutbacks come as oil prices continue to linger at low levels
September 28, 1998
By Jennifer Darwin
Houston oil field service companies have begun laying off employees worldwide in response to a protracted drop in oil prices. One industry analyst predicts as many as 5 percent to 10 percent of all workers in the service industry could become casualties of the declining prices, which dipped to the low teens early this year and currently hover in the $14.50 range.
"We could be in a down mode for the rest of the year," says George Gaspar, managing director of petroleum research for Robert W. Baird & Company Inc. in Milwaukee. "I don't think that the upturn is going to be sufficient to reverse the layoff trend until well into 1999."
Baker Hughes Inc. is taking one of the biggest hits. The well service provider cut 3 percent of its work force during the second quarter of 1998, which amounted to between 600 and 700 employees. Gary Flaharty, director of investor relations for Baker Hughes, says the number of layoffs -- in both manufacturing and services -- will increase during the third quarter, with at least another 3 percent of employees losing their jobs.
Baker Hughes now has about 35,000 total employees following the company's August merger with Western Atlas, so the 3 percent figure translates into more than 1,000 additional employees out of work. The final casualty count for the third quarter will not be available until Nov. 2, when the company is scheduled to release earnings.
Baker Hughes will not specify how many of the layoffs have or will occur in Houston, but most of the cutbacks are happening in Venezuela, an area targeted by several oil field service companies for cutbacks. "As our customers' spending patterns change, we are adapting our business to those changing spending patterns," Flaharty says. "The vast majority of the layoffs are activity driven."
Houston-based Schlumberger Oilfield Services has reduced its work force by 1,000 employees over the past three months by offering early retirement to employees in North America. And that number stands to increase since workers have until the end of this month to take the company up on the offer.
Stephen Whittaker, a Schlumberger spokesperson, says making an offer like this to people who are approaching retirement age takes some of the sting out of the layoffs. "A package has been designed that improves their benefits substantially and enables them to retire earlier than they could have otherwise," Whittaker says.
Schlumberger Oilfield Services is a subsidiary of New York-based Schlumberger Ltd., which has 63,000 employees worldwide. The division achieved the amount of reductions it wanted with this round of cuts, Whittaker says, but that does not mean the layoffs are over. "I imagine that we will be seeking worldwide reductions," Whittaker says. "It is a variation in the business cycle -- something we see every six years."
Houston-based Halliburton Energy Services, a business unit of Halliburton Co. in Dallas, has laid off about 180 people -- 30 in the Houston Technology Center. Another 100 jobs have been cut in Duncan, Okla. and 50 people are out of work in the Lafayette, La. area.
Halliburton Spokesperson Dirk Vande Beek downplays the significance of the cuts since Halliburton Energy Services has 20,000 employees in 60 countries. "We have not had massive layoffs," he says. "It's just a little bit here and a little bit there."
While every company in the industry is keeping an eye on the bottom line, Vande Beek does not expect any more layoffs. "We are watching and waiting and seeing what's happening with the price of oil and natural gas," he says. "We're watching all of our costs, but that's a normal thing for us."
Houston-based BJ Services Co. is also laying off employees, but company officials would not return telephone calls. One company insider says up to 500 people could be losing their jobs at various locations.
Houston-based Smith International Inc. confirms that it, too, is experiencing layoffs, but will not give the specific amount. The most significant reductions are occurring in Venezuela and southern areas of the United States.
Neal Sutton, senior vice president of administration for Smith International, stresses that these are selected reductions, not general layoffs. And he adds that some of the consolidation can be attributed to recent acquisitions. "It's not a very large number," Sutton says. "It's not across the board. It's only in certain markets or products where there's been a significant decline."
Roger Read, a research analyst with Houston-based Simmons & Co. International, says he is not surprised by the cutbacks. He even goes as far as to say this may be a good business decision for the industry. "It's probably the prudent move to make," Read says. "Until we see oil prices come back up, it's going to be a difficult operating environment." At this point, the layoffs have been confined mostly to the service sector and haven't yet spread into the exploration and production side of the business (see related story).
Analyst Gaspar says service companies, typically the first to be hurt financially in situations like this, are laying people off quickly because of the sharpness of the decline in oil prices over the last six to eight months. "I think they're reacting faster because the decline in drilling has been more precipitative," Gaspar says. "The bigger (issue) is the lack of confidence that there's going to be any significant short-term upturn."
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