In Battered Oil Services Sector, Smallest Look Weakest

Reuters

LONDON/OSLO, Jan 22 (Reuters) – Slammed by plunging oil prices, oil services companies which supply rigs and carry out seismic surveys face a bleak outlook of cutbacks and contract cancellations. Peer through the gloom though and possible winners as well as losers emerge.

Titans of the sector such as Schlumberger NV and Halliburton Co may have a chance to scoop up assets and know-how from rivals less able to weather the downturn, as their deeper pockets give them a major tactical advantage.

"The larger companies, which still have access to credit, can take the opportunity to regenerate their own fleets at a cheaper cost than if they had to build it themselves," said Pascal Menges, portfolio manager for Lombard Odier's Global Energy fund. Schlumberger was one of his top three holdings as of end-December, according to the fund fact sheet.

By contrast, drillers have faced a collapse in day rates as they battle with overcapacity. Norway's Seadrill Ltd for instance has seen its shares plummet 66 percent in the last 12 months, a prime casualty of the shakeout. It has suspended dividends and its 2018 floating rate note yields 12 percent.

Right now, the pain is being felt across the sector.

Schlumberger, the world's biggest oilfield services provider, said on Jan. 15 it would cut 9,000 jobs, or about 7 percent of its workforce. Halliburton is making similar cuts as it merges with Baker Hughes.

Yet by slashing headcount and retiring older seismic vessels they could emerge leaner, stronger and well placed to pick up assets from smaller, weaker competitors.


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Doug Stetzer | Jan. 23, 2015
While headlines of the "big guys" slashing headcount are making the news, there are untold amounts of little guys who will be slimming down from 20 people to 5 or will literally be closing up shop altogether. All these numbers add up to real pain in the workforce.


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