Baker Hughes will lay off 7,000 workers by the end of March, a move expected to impact the Permian Basin as low oil prices pressure the labor-intensive oilfield services sector to scale back.
Baker Hughes officials did not reveal how many of those cuts will be in the Permian Basin.
“This is really the crappy part of the job, and this is what I hate about this industry, frankly — these brutal cycles that we have to go through,” said CEO Martin Craighead during a conference call. “. . .This is the industry, and it’s throwing us another one of these downturns, and we’re going to be good stewards of our business and do the right thing. But these are never decisions that are done mechanically.”
Craighead said the company is “more people intensive than we ever have been,” particularly in pressure pumping. The Permian Basin was among the higher-cost basins where Craighead said the company sees growing pressure to cut costs.
The announcement created uncertainty for local employees like Travis Phillips, a 23-year-old Odessan who landed a well-paying job on a Baker Hughes wireline crew about six months ago. Baker Hughes had about 630 employees in the Odessa area by November, according to the Odessa Chamber of Commerce.
“I’m definitely worried about it,” Phillips said, adding he heard about potential layoffs on Tuesday but began to worry weeks ago as oil prices kept dropping. “They already said there are going to be layoffs. They just haven’t said who is going to be laid off.”
Baker Hughes became the latest in a string of company announcements about dramatic cuts as West Texas Intermediate oil prices hover below $50 a barrel, a nearly 60 percent drop since the peak price of about $107 in June. (The Permian Basin benchmark ended at $42.50 on Tuesday. Plains-WTI posting peaked at $101.68 on June 20).
Baker Hughes CFO Kimberly Ross said the oilfield services company has “tried to be surgical with our cuts” and plans to trim discretionary spending, vendor pricing and travel. Officials are also considering closing facilities.
“We’re looking across the board,” Ross said.
The layoffs will amount to about 11 percent of the company’s more than 62,000 employees across the globe.
Large Permian Basin oil companies including Apache, Diamondback Energy and Concho Resources have already announced plans to scale back in a range of 30 to 40 percent, releasing rigs as they wait out the downturn.
But rig workers and oilfield services crews are expected to be the hardest hit. The Dallas Fed last week forecast a “very uncertain” and “significantly weaker” year for oilfield services companies in the Permian Basin, with firms expecting a decline in demand by 15 to 40 percent.
And other major service companies including Schlumberger and Halliburton have already announced looming layoffs.
Schlumberger on Thursday announced plans to cut 9,000 jobs, or about 7 percent of the company’s global workforce.
Schlumberger executives also did not specify how many of those layoffs would be in the Permian Basin but did say the oil price drop should be “significantly more dramatic” in North America than the rest of their territory. In the summer, Schlumberger officials had said they hoped to hire 200 people by the end of 2014 to a total regional workforce of about 3,000.
Baker Hughes officials had also announced a ramp of Permian Basin staffing during the summer, relocating about 100 workers from Bakersfield, Calif.
Analysts had widely expected prices to remain above $90 a barrel before barrel prices entered free fall amid mounting signs of global oversupply and a decision by the Organization of Petroleum Countries to respond by cutting price instead of production.
Baker Hughes expects a 15 percent rig count drop in just the first quarter of the year.
“What they hinted to is that they are a seeing a large amount of the slowdown in North America first, which makes sense, so I would expect the cuts to be weighted to North America for them,” said Joseph Triepke, a financial analyst from Odessa and managing director of Oilpro.com. “And when you think about it there are only three major plays: the Bakken, the Eagle Ford and the Permian. And the Permian Basin is the largest of those. I would imagine a large amount of the people they are cutting are in the Permian Basin.”
The Permian Basin has about 487 rigs running today, according to the Baker Hughes’ most recent report released Friday. That’s down from a peak of about 570 last year. Baker Hughes reported past downturns brought a rig decline of 40 to 60 percent.
The executives’ announcement about layoffs followed their report that their net income in the quarter ending Dec. 30 increased to a record $629 million. That compared to $238 million in profit during the same period of 2013.
Baker Hughes rival Halliburton is in the process of absorbing the company in a deal valued at more than $34 billion. That November announcement had already created some uncertainty as some duplicate employees would likely be eliminated even as both companies had announced plans to grow in the Permian Basin. In Odessa, the company’s deca-million dollar campuses neighbor each other on Business 20.
But now, Halliburton also expects to lay off employees, according to an announcement during another Tuesday conference call. Halliburton executives did not specify how many.
In November, Halliburton had about 1,570 in the Odessa area, according to the Odessa Chamber of Commerce.
“We have already taken initial steps on headcount internationally,” President and Chief Operating Officer Jeff Miller said. “As North America begins to fall more sharply, we will make adjustments here as well . . . We expect our headcount adjustments to be in-line with our primary competitors.”
This article was written by Corey Paul from Odessa American, Texas and was legally licensed through the NewsCred publisher network.