February 10, 2015

Halliburton swings ax on jobs as IEA talks $55 for 2015

The oilfield services giant said today it would cut 5,000-6,500 jobs due to the ongoing oil prices slump.

That's follows announced plans to make cuts in mid-January, in part related to its Baker Hughes merger as well as the price slide AND cuts of unannounced numbers in early January plus cuts of non-American employees last December.

Baker Hughes previously announced about 7,500 cuts. For BH, it's the biggest decline since the 1980s.

While Halliburton, at least, tries to whistle in the dark about how much of this is overseas stuff, both companies get about half of their revenue from North America.

And FMC Technologies is cutting about 2,000 jobs, primarily in North America.

Meanwhile, the International Energy Agency expects crude prices to average $55/bbl for this year, and not to get above $70 for some time. Oh, and $100 oil? Not even on its current horizon.

And thus, contra new Texas Comptroller Glenn Hegar's rose-colored glasses, this is why Moody's worries about the Texas economy, saying Houston's could "deflate" if oil prices stay relatively low for a year or more.

“Until the energy sector returns to strong growth, we expect the area will experience employment losses, which will mute sales tax growth and, if oil prices continue to drop or stay low for more than a year, lead to a decline,” Moody’s wrote. 
From 2007 to 2013, the number of Harris County residents working for large energy companies almost doubled, and in 2013, nine of the top 10 major employers were oil and gas companies.

Well, there's reality. If the IEA is right, that's about a year's worth of low prices right there.

The IEA story is worth a read right there. Going by Brent prices, which it expects to only get to the low-mid $70s by 2020 (yes!), this is not a one-year slump, it's potentially a multi-year readjustment.

And, the IEA is right to be concerned. Its U.S. counterpart, the Energy Information Agency, says current stockpiles are at an 80-year high for this time of year.

Cheaper fracking sites may be profitable if $45 is indeed a break-even point, but newer exploration isn't going to happen in any great amount, if the IEA is right — because there will be no demand for it. US EPA gas mileage requirements will continue to rise. Older cars will come off the road in Europe and the US. Driving miles will remain flat in both countries. To the degree emerging economies buy cars, it will be inexpensive, economy ones with better fuel mileage than ever.

As for geopolitics? Russia as we know it can't live in $70 oil. Either Putin finishes the move to full dictatorship, or he's thrown out of office well before 2020. More thoughts on this in a future post.

That said, maybe there will be a silver lining to all the cuts in fracking, and that's that the likes of Halliburton stop fighting Endangered Species Act protection for sage grouse. That's even as we learn about the dirty pool behind US Fish and Wildlife Service agreeing to let the state of Texas put together a voluntary "conservation" program for the dunes sagebrush lizard.

Meanwhile, is the IEA right? See the poll at right to cast your vote on where you think West Texas Intermediate will be on March 31.

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