OPINION: When Olivier Le Peuch took over as chief executive at the world’s biggest oil services group, he said the “Schlumberger of today will not be the Schlumberger of tomorrow”.
How right he was, although he did not realise then that the energy industry was about to face plunging crude prices and coronavirus.
Le Peuch was talking in September, those better times before Russia and Saudi Arabia unleashed their brutal oil price war.
It was also before Covid-19.
Le Peuch did know fossil fuels would be affected by one other threat that has not gone away: global warming.
But he wanted Schlumberger to become a standard bearer for digitalisation, to expand beyond oil and focus on specialist local markets.
He also took some early balance sheet action with an $8.8 billion goodwill write-down in financial results soon after taking over as chief executive.
The full scale of wider impairment charges — $12.7 billion — shone a harsh light on acquisition sprees by his predecessors that snapped up rivals such as Smith International, Geoservices and Cameron.
There are already reports of operators calling on service providers to cut rates by as much as 30%
Now it owes banks $15 billion at a time when its total stock market value had slumped below $20 billion.
A share price that was close to $50 less than a year ago (and $120 in 2014) fell to $14 this week as Brent crude values dropped to $28 per barrel.
Le Peuch told an industry conference this week that Schlumberger would cut its spending by 30% this year in response.
What will happen now to Schlumberger and the rest of the oilfield contractors, including some that are much smaller and financially weaker?
Credit agency Moody's said last week that smaller regional service providers “face the brunt of the (oil) sector’s weakness and therefore the greatest refinancing risk”.
There is particular concern inside those companies exposed to the relatively high-cost US shale sector, which is now ground zero in the oil price war.
The Houston Chronicle reports that nine of the most prolific Texas shale drillers such as Apache, Occidental and Marathon, have cut more than $9 billion from their combined spending budget already.
Schlumberger’s main rival Halliburton has furloughed 3500 staff in Houston for 60 days.
Halliburton chief financial officer Lance Loeffler also said on Tuesday, according to Reuters, that the company is stepping up its cost-cutting and will significantly reduce spending this year below its original $1.2 billion budget.
The company will focus on returns and free cash flow, in part because financing from Wall Street has dried up for the oil and gas sector, Loeffler said.
Halliburton has seen its stock price fall about 70% in the past four weeks and has already reduced staff over the past year.
Last autumn, Fluor announced plans for $1 billion worth of asset disposals, while others have started to offload assets.
Oil majors are planning to slash capital expenditure and there are already reports of operators calling on service providers to cut rates by as much as 30%, claims investment bank Evercore.
Oilfield services have just been through a painful restructuring in the wake of the 2015 crude price slump.
Hopes that the good times are just round the corner have now all but evaporated. The name of the game now may be survival.
(This is an Upstream opinion article.)