The three largest oilfield service companies continue to face economic difficulties even as OPEC, its allies and other nations reached a milestone deal over the weekend to cut production.

Houston-based Baker Hughes was quick to react Monday, saying that it plans to write down $15 billion of assets and cut capital spending by 20 percent from 2019 levels. Meanwhile, Wells Fargo and Scotiabank downgraded stock market expectations for rivals Schlumberger, the world’s largest oilfield service company, and No. 2 Halliburton.

The three companies, headquartered or with principal offices in Houston, employed a combined 226,000 people across the world at the beginning of the year, but the oil price crash has decimated their ranks.

Service Sector: Layoffs, pay cuts loom as Schlumberger cuts 30 percent from budget

Despite OPEC and Russia agreeing over the weekend to cut global crude oil production by 10 million barrels per day, the world remains profoundly oversupplied by more than double that amount as the coronavirus pandemic crushes global demand. West Texas Intermediate fell by 35 cents Monday and settled at $22.41 per barrel.

With oil prices near a 20-year low, the oilfield services sector, like the rest of the industry, is hobbled by stay-at-home orders, furloughs, layoffs and executive pay cuts as their customers cut spending on new drilling projects.

Baker Hughes expects to take the $15 billion writedown in the first quarter. It won’t affect the company’s cash flow but could result in a net loss when the company reports first quarter figures April 22.

A 20-percent cut would leave the company with a capital spending budget of $780 million, down from the $976 million it spent in 2019.

Baker Hughes followed Schlumberger in slashing capital spending. Schlumberger said March 24 that it would cut its budget by up to 30 percent, including restructuring, pay cuts and layoffs.

The magnitude of the budget cuts depends on changes to customers’ plans, but a full 30-percent cut would leave the company with a $1.2 billion capital budget for the year. The company spent $1.7 billion on capital projects in 2019.

Halliburton recently laid off more than 400 employees in Oklahoma and furloughed 3,500 workers at its Houston headquarters through the end of May. The company isn’t expected to release a new headcount or revised budget figures until it releases its first quarter earnings April 20.

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Shares of Schlumberger and Halliburton fell Monday while Baker Hughes closed higher.

Schlumberger closed at $15.95 per share, down 51 cents from Friday. Halliburton closed at $7.85, down 36 cents. Baker Hughes closed at $13.29, up 43 cents.

Vebs Vaishnav, an oil-field service company analyst with Scotiabank, wrote in a Sunday report that a declining number of operating rigs in U.S. shale plays doesn’t bode well for the companies and that the production cuts established over the weekend could also cut activity overseas.

The shale industry must cut hydraulic fracturing capability to align with falling demand, Vaishnav wrote, and that could hurt Halliburton, the largest frac crew operator in the U.S.

Schlumberger, he wrote, has another set of problems.

Unlike some of its rivals, Schlumberger has not pledged to cut its shareholder dividend, Vaishnav said. So despite having $5.4 billion in cash, the company could wind up borrowing to fund the payouts.

“We expect Schlumberger to cut its dividend in the first quarter 2020 or at worst, second quarter 2020,” he said.

James West, an oilfield service company analyst with New York investment banking advisory firm Evercore, wrote that Baker Hughes is in a much stronger position now than during the the 2015 oil bust, when the company’s decision-making was hampered by a failed merger attempt with Halliburton.

“This time around, Baker Hughes can respond quickly to adjust its cost structure, has better systems in place to make faster decisions, and is closer to its customer base,” West said.

sergio.chapa@chron.com

twitter.com/sergiochapa

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