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Oilfield services sector still coping with aftermath of commodity down-cycle

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Oilfield services sector still coping with aftermath of commodity down-cycle

The latest commodity down-cycle led to massive layoffs in the oilfield services sector, where employment may not recover as quickly as oil prices.

Declining investment in oil exploration and production has pressured oilfield service companies even as those companies have seen revenue improve from rising oil prices. The International Energy Agency warned March 5 that global oil production growth will fail to keep pace with demand growth through 2023.

Since oil prices began to tumble in 2014, the energy services sector has seen "big damage," including the loss of more than 300,000 jobs, many of which have not returned, Kamel Ben Naceur, chief economist for Abu Dhabi National Oil Co., said March 6 at CERAWeek by IHS Markit. "Bringing them back on today would be much more difficult … [amid] pressure from the cost side," he said.

Linda Capuano, an administrator with the U.S. Energy Information Administration, added that the oilfield service sector is "losing expertise and that's the real concern," she said, noting that the collapse in the industry and the slow recovery since then also makes it hard to recruit the next generation.

Schlumberger Ltd., one of the biggest operators in the oilfield services space, was forced to let go of approximately 70,000 employees, which is "not just devastating for those [that were affected] but it's also tough for the organization," Paal Kibsgaard, Schlumberger's CEO and chairman of the board, said at the conference.

Kibsgaard said the collapse in prices required drastic measures of response, including widespread layoffs, significant cost reductions and a revamped investment strategy.

The latest downturn was "by far the deepest and longest on record," he said, noting that from the standpoint of a service company, the response was a "significant undertaking [that] required significant cost action to keep [the company's] financial health in order."

As a means to recovery, Schlumberger carefully reviewed its asset base and infrastructure, analyzed ways to improve efficiency and was active in its pursuit for mergers and acquisitions, acquiring Cameron International Inc. in 2016.

"It's been difficult," he said. "You go through downsizing and you are used to doing that in the oil and gas industry, but as you go through two or three or four [rounds of layoffs] in succession, it has a big impact.

"I think everyone in the company realizes that we're in a cyclical business and with that comes some ups and downs and there are risks associated with that. But at the same time this [downturn] has been much longer and much deeper than what we have seen before," Kibsgaard said. "I'm not worried about the Schlumberger culture being impacted, but it has taken a toll on the organization as it causes motivation problems and frustration and that’s the job we have as the management team – to restore the optimism."