The oilfield services industry has witnessed a massive downturn over the last few quarters. With WTI Crude price still struggling to cross the $50 per barrel mark for a sustained period, oilfield services companies are experiencing slowdown in recovery. This lean period forced oilfield service providers to cut costs significantly by suspending some of their major operations and trimming jobs while looking for innovative ways to churn out more oil and gas. While this strategic action might improve profit levels to a certain degree, the overall sentiment surrounding the industry persists to be mostly negative.
Industry Performance
Let’s take a look at the price performance of the oil and gas field services industry. In the past five years, the S&P 500 Index has surged 51.7% against the oil and gas energy sector’s 33.1% slump. During this period, the Zacks oil and gas field services industry plunged a whopping 46.4%. Moreover, the industry currently ranks at the bottom 5% of the Zacks Industry Rank.
Oilfield Jobs in Jeopardy
While behemoths like Halliburton are grappling with issues, smaller companies are faring no better.
In a bid to bounce back from the controlled spending by oil and gas producers due to weak prices, Halliburton Company HAL plans to slash headcount by nearly 800 at its El Reno operation in Oklahoma. Further, it plans to close its office in the suburbs of the same city.
Also, the move comes within two months of Halliburton’s announcement of laying off 650 employees across four states, namely New Mexico, Wyoming, North Dakota and Colorado.
This Houston-based oilfield service provider realized that in order to enhance its operating efficiency despite challenging market conditions, it has to lower costs substantially.
Halliburton noted that for operators in North America where oil production hit record levels, it’s more about returns now and not growth. The volatility in commodity price convinced explorers and producers to adopt a relatively conservative approach to capital expenditure programs. This shift in customer strategy is likely to induce subdued demand for oilfield services and equipment, putting much pressure on pricing.
This organizational restructuring is anticipated to help Halliburton achieve its purpose of minimizing expenses and optimizing operational excellence by testing and supporting its employees.
Further, Texas-based National Oilwell Varco, Inc. NOV announced that it will retrench 85 personnel as it plans to shut down its equipment-making operations for offshore and onshore drilling rigs at its Galena Park facility due to the continuing drop in shale business, which in turn, induced a fall in drilling and completion activity in the United States and Canada.
Additionally, in the recently-reported quarter, National Oilwell Varco’s bottom line declined from the year-ago period’s break-even earnings as North American drillers scale back their production growth plans, leaving less scope of work for the likes of National Oilwell Varco.
Moreover, Pumpco Energy Services, Inc., an affiliate of Superior Energy Services, Inc. SPNV, widely known for delivering fracking services for well digging completions, recently made 112 workers redundant at its Odessa, TX-based site. While RPC Inc., RES confirmed reducing part of its workforce. The company has a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Conclusion
Even though the oil and gas field services industry spreads bearish sentiments among investors, sluggish US oil output might give a wake-up call to ramp up activity on the international front for narrowing the demand-supply divide. This, in turn, could create an avenue of opportunities for multinational oilfield service companies.
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