Executives at oilfield services companies are making difficult decisions to cut operations during what could be the worst market downturn in decades.
First-quarter earnings calls by the oilfield services majors were full of cuts including reductions in headcounts, operational footprints, dividends and salaries, including executive compensations all in response to customer spending cuts as the coronavirus pandemic slashed energy demand and sent the market spiraling lower.
Industry analysts said the massive scale back in operations is necessary as the sector braces for more profound losses as the COVID-19 impact worsens.
National Oilwell Varco Inc. appears to be "tackling the problem head-on, with large cost-cutting initiatives and recognition of the immediate severity of the oil price crash," Bernstein analyst Nicholas Green said April 28.
Clay Williams, the company's chairman, president and CEO, said that while he anticipates a further two-year slog to get to the other side of the market downturn, the company will remain "resolute in doing whatever we have to do to adjust to the marketplace."
The coronavirus forced the company to close 27 facilities in the first quarter, with another 29 closures pending, Williams said.
Overall, industry analysts said companies in the troubled sector are heading in the right direction but additional tough decisions are necessary.
Stephane Biguet, CFO of industry bellwether Schlumberger Ltd., said the company made the "most important decision of the quarter" when on April 17 it announced a 75% cut in the dividend.
A stock price jump following the announcement was encouraging, Tudor Pickering Holt & Co. analysts said April 20. "It illustrates that the market agrees with this prudent (cash conservation) move by Schlumberger heading into what looks to be the worst industry downturn in a generation," the analysts said.
"But Schlumberger's battle isn't over," Green said April 24. The dividend cut was part of a "sharp response" to the market crisis and one that will facilitate some deleveraging, but "investors need to see concrete actions to rationalize/downsize operations in place by the end of Q2."
During its April 20 earnings call, Houston-based Halliburton Co. delayed addressing the dividend as the company's top executive, Jeffrey Miller, said the board and management will continue to review the dividend quarterly.
Halliburton is expected to pay out close to $650 million in dividends this year, which "cannot be justified," Green said. "We'd like to see the dividend cut promptly."
Amid a steep drop in North American shale activity, Halliburton slashed its full-year capital spending budget by about 50% from 2019 levels to about $800 million, and it plans to cut about $1 billion of annualized overhead and other costs across the entire business.
Miller said the company would not increase leverage to maintain the dividend nor allow it to prevent Halliburton from "being structurally and financially positioned to take advantage of the eventual market recovery."
Baker Hughes Co. was one of the strongest companies in the sector going into the downturn and will be in "post-pandemic pole position," Tudor Pickering Holt analysts said.
While it "will not be spared the pain ahead for the broader oilfield services group," Baker Hughes "is well-positioned to survive the downturn," CreditSights analysts said in an April 28 note.
After reducing its 2020 capex by 20%, the company "is pulling the levers at its disposal in order to preserve liquidity and protect the balance sheet in the face of expectations for customer spending this year to be down 50% in North America and 15% in International regions," the CreditSights analysts said.