Schlumberger Revamps Business Lines to Cut $1.5B Annual Costs

Schlumberger restructured, creating four divisions instead of 17 product lines, as part of an effort to cut $1.5 billion of yearly costs.
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Schlumberger  (SLB) - Get Report began "major changes" to its organizational structure aimed at cutting $1.5 billion in costs a year at the oilfield-services giant.

Shares of the Houston company at last check were up 1.2% to $19.56. 

Halliburton  (HAL) - Get Report, ConocoPhillips  (COP) - Get Report, and Chevron  (CVX) - Get Report were also climbing.

Chief Executive Olivier Le Peuch, speaking at the JP Morgan 2020 Energy, Power & Renewables Conference, said efforts to contain the coronavirus pandemic had magnified the impact of existing oversupply conditions. 

Among other moves, Le Peuch said the company is moving to four divisions from 17 product lines and structuring its geographic organization around five key basins of activity.

"Although we forewarned that Q2 will decline severely, the drop has been sharper than expected," Le Peuch said, "due not only to the severe decline in North America land activity, but also due to the covid-related disruptions in the international market."

Le Peuch said that several years ago, the company had redesigned its well-site operating model by using digital technologies and processes that enable remote work. The move resulted in 60% of current drilling operations being run remotely.

"Today, we routinely reduce our operational headcount by 25% when operating remotely, and soon we will reach or exceed 50% on certain well-site operations," he said.

Looking to the second half of the year, Le Peuch said the company expects production curtailment and the gradual resumption of demand to hold supply and demand in relative balance while maintaining a floor on oil price.

"As a consequence, in North America, the conditions are set for a temporary - albeit modest - activity increase in (drilled but uncompleted well) completions, though from a very low base," he said. 

By contrast, Le Peuch added, the risk of further decline persists in the international markets due to continued disruption of rig operations as a result of the pandemic and the impact of OPEC Plus supply cuts.

In April, Schlumberger cut its dividend for the first time in decades and reported a decline in first-quarter profit.