Plummeting Oil Prices Resulting in Layoffs at Halliburton

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Feb 12, 2015
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The world’s second-largest oilfield services company, Halliburton (HAL, Financial) has announced its plans to trim its workforce by 7%. That would be a good number of 5,200 to 6,400 workers. The company has taken this decision in response to the plummeting oil prices. The company declared that the retrenchment has got nothing to do with its recent acquisition of Baker Hughes services company (BHI, Financial).

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Whenever there is a decommission of rigs, or cutting of investments on exploration and production of fuel, companies like Halliburton, that are involved in drilling and completing wells onshore and offshore suffer the most.

THE DOWNWARD TREND

Recently, different oil companies have announced reductions ranging from 15% to 30% in their budgets of the current year. These reductions are the outcomes of the 50% drop in the crude oil prices since June. Service fees have gone down on an average of 15%, and are expected to drop down even further. Around 90 rigs per week are being dropped all over American shale fields in the last two months.

“We value every employee we have, but unfortunately we are faced with the difficult reality that reductions are necessary to work through this challenging market environment,” Halliburton told the New York Times.

Industry executives are preparing themselves for further shocks to be caused due to a prolonged period of low prices after many years of prices around 100 dollar per barrel. The American Intermediate oil benchmark, price dropped by over 5% to a meager amount of $50.

With the market speculating that the American oil production would decline further in the face of the oil price slump, the oil prices had been showing signs of recovery since the last week of January. Although according to the government and industry’s data, the domestic production is still showing an upward trend and contributing substantially to the global production numbers. The data indicate, that the current trend would continue till the second half of the year at the earliest.

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GULF: NOT SO SUPPORTIVE

The problem continues to aggravate further due to the recent moves from the Organization of the Petroleum Exporting Countries led by Saudi Arabia. It has refused to reduce the production, as it generally does when the prices drop. To make the situation even worse, major oil producing countries like Saudi Arabia, Iraq, and other OPEC regions have reduced their prices in order to save their market share in Asia.

In a speech at international petroleum week in London, Igor I. Sechin (the president of Russia’s state oil company and one of the country’s most senior energy officials) harshly criticized the OPEC for their strategy.

Mr. Sechin said that he saw no genuine reason for the collapse in prices that are damaging the country’s economy. With the ongoing political and geopolitical conflict in the oil producing regions around the world, the prices should remain up.

CONCLUSION

Research reports reveal that in the days to come, the commodity would face a bear market. The Paris based International Energy Agency, projected an average price of $55 per barrel for 2015, increasing to $73 in 2020. “The market does not seem to be expecting prices to revisit earlier highs any time soon,” said the report.

The report of the agency suggested that the drop in prices would bring a halt in the growth of American oil production units in the years to come. But it also predicted that the producers would find methods to bring down costs and increase the production once the prices recover.