SLB Schlumberger Ltd

By Collin Eaton 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (April 18, 2020).

Schlumberger Ltd., the world's largest oil-field-services company, cut its shareholder dividend 75% and is restructuring businesses, cutting jobs and closing facilities to cope with a historic energy rout.

Chief Executive Olivier Le Peuch said on Friday that Schlumberger is bracing for an acute downturn, with North American oil-field activity set to decline 40% to 60% in the second quarter, the steepest drop in several decades.

Globally, the capital spending by oil companies that sustains services firms is set to fall 20% this year, with North American drilling and fracking activity falling 40%, Mr. Le Peuch said.

Despite the recent agreements by major oil producers, including OPEC and Russia, to curtail production, "Q2 is likely to be the most uncertain and disruptive quarter that the industry has ever seen," he said in a conference call.

Schlumberger disclosed its plans while reporting a $7.4 billion net loss in the first quarter. The company is taking an $8.5 billion pretax charge for asset impairments, almost all noncash. It said it planned to furlough more workers and reduce head count in response to the challenging environment. In the first quarter, it cut 1,500 jobs in North America.

Schlumberger's board approved a quarterly cash dividend of 12.5 cents a share, compared with a previous dividend of 50 cents. Mr. Le Peuch said it was a difficult decision but one that would protect its cash and liquidity in the downturn.

The company's shares rose almost 9% on Friday, as U.S. stocks climbed on hopes of a treatment for coronavirus. Schlumberger's earnings per share, excluding charges and credits, of 25 cents, beat analysts expectations of 24 cents a share, according to FactSet.

Mr. Le Peuch, appointed CEO in July, was already working to shift away from some U.S. businesses, reducing a fracking fleet it had built when shale was booming. But selling underperforming units will be difficult in the current market, analysts said. The company has less cash and more debt than prior to the last downturn.

Its stock has dropped about 65% this year as oil prices crashed under the weight of a global glut and a historic demand slump. The company's first-quarter loss of $7.4 billion, or $5.32 a share, compared with net income of $421 million, or 30 cents a share, in the same period last year. Revenue dropped to $7.45 billion from $7.9 billion. In North America, sales fell 19% as producers cut spending.

Schlumberger, which has corporate offices in Paris, Houston, London and The Hague, has about $4 billion in debt maturities through 2022, according to FactSet.

By the end of the first quarter, the company had reduced its spending plan in North America by 60%, while reducing overall spending for the year about 35% to $1.8 billion.

The oil-field-services sector, always the first in line to feel the effects of any downturn, is expected to shed more than 200,000 U.S. jobs this year, analysts said, due to combined pressures of coronavirus and the oil-price war that ended last weekend.

"The job losses are going to be profound, some of them structural," said Bill Herbert, an analyst at Simmons Energy, a unit of Piper Sandler. "It's a vastly overcapitalized industry."

All told, the oil-field-services industry will likely cut 21% of its global workforce this year, according to consulting firm Rystad Energy. The number of drilling rigs operating on U.S. land has plunged to 512, the lowest since October 2016 and down from 773 in mid-March, according to Baker Hughes Co.

For smaller oil-field-services companies with revenue of $1 billion or below, job reductions have ranged from 40%-50% and most layoffs have already occurred over the past month, said Richard Spears, vice president at energy-consulting firm Spears & Associates.

Earlier this week, rival Weatherford International PLC said it would cut 25% of its global workforce and delist from the New York Stock Exchange. Baker Hughes planned to take about $1.8 billion in charges related to a restructuring plan and expected to write down $15 billion in assets. Last month, Halliburton Co. furloughed 3,500 employees at a Houston campus.

Schlumberger had 105,000 employees at the end of last year, down from 120,000 at the peak of the last oil boom in 2014.

Write to Collin Eaton at collin.eaton@wsj.com

(END) Dow Jones Newswires

April 18, 2020 02:47 ET (06:47 GMT)

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