In a bid to bounce back from the dramatic reduction in spending by oil and gas producers due to weak prices, Halliburton Company HAL is permanently slashing headcount by nearly 350 at its Duncan facility in Oklahoma.
Further, the company is set to trim its executives’ income. Apart from their salary cuts, it is planning to halt certain contributions made to employee retirement accounts.
The oil industry is battered big time due to the coronavirus pandemic that pervaded most sectors until now. Fuel demand took a huge hit following large-scale travel constraints imposed globally. To make matters worse, oil prices tanked as Saudi Arabia waged a price war and ramped up its oil production substantially in retaliation to Russia’s resistance to lower its crude production at the OPEC meeting.
Against this backdrop of oil downturn, Halliburton's profits were dented. Its stock price has shed 67.2% of value since the beginning of 2020 when crude was trading at more than $60 a barrel.
Thanks to the current global economic downslide, Halliburton had last month announced laying off 3,500 workers for a couple of months. During this time, the employees retained on payroll will report to work on alternate weeks i.e. one-week on and one-week off and will only be salaried for the weeks they were on duty.
These strategic moves come within four months of the company’s announcement to retrench 800 employees at its El Reno operation in Oklahoma.
This Houston-based oilfield service provider realized that in order to enhance its operating efficiency despite the challenging market conditions, it has to curtail costs substantially.
Halliburton previously noted that for operators in North America where oil production hit record levels, it’s more about returns now than growth. The volatility in commodity price convinced explorers and producers to adopt a relatively conservative approach to capital expenditure programs.
This shift in customer policy is likely to induce subdued demand for oilfield services and equipment, putting much pressure on the pricing. So impelled by this current market scenario, many oilfield service players including Oceaneering International OII, Schlumberger Limited SLB and ProPetro Holding PUMP are taking cautious measures by containing their capital spending.
This organizational restructuring is anticipated to help this Zacks Rank #3 (Hold) company achieve its purpose of minimizing expenses and optimizing operational excellence by testing and supporting its staff. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
While this tactical action might boost profitability of this world's second-largest oilfield services company to a certain degree, the overall sentiment surrounding the industry, however, remains mostly pessimistic.
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