Halliburton's failed pursuit of its Houston rival energy Baker Hughes cost shareholders and employees dearly as the energy services firm reported a multibillion-dollar loss in the second quarter and slashed another 5,000 jobs across its global workforce.
Halliburton said Wednesday that it lost $3.2 billion in the three months ending in June and completed another round of layoffs, largely due to the $3.5 billion breakup fee it was required to pay Baker Hughes under their merger agreement. Since the oil downturn began two years ago, Halliburton, the world's second largest energy services firm, has cut at least 35,000 jobs – about 40 percent of its workforce.
The company did not disclose how many of those cuts came in Houston.
While the merger of two of Houston's most storied firms seemed to make sense when it was unveiled in late 2014 it ultimately proved to be a costly miscalculation of both energy markets and the anti-trust environment. Many analysts initially viewed the deal as a powerful combination of the world's number two and three energy services firms that would create a formidable challenger to the industry leader, Schlumberger.
But the slide in oil prices only accelerated and antitrust regulators raised concerns that the combined company would gain too much market power, allowing it to raise prices on its customers, oil and gas producers, which would eventually pass them to consumers. The U.S. Justice Department sued to block the merger in April; in May, Halliburton abandoned the deal.
Save for the breakup fee, Halliburton may have posted a small profit. Executives largely avoided discussion of the failed merger and its impact in a call with analysts. Only Chief Financial Officer Mark McCollum, mentioned it: "This quarter was particularly noisy because of the termination of the Baker Hughes deal," he said.
Hallliburton gained market share and outpaced analysts expectations in the second quarter, but overall, it was another tough three months for the company. The losses came on top the $2.4 billion in red ink reported in the first quarter. Revenues in second quarter dove 35 percent to $3.8 billion from $5.9 billion from the same period last year.
Halliburton stock fell 71 cents Wednesday to $44.28 a share.
Chief executive Dave Lesar, however, told analysts the worst was over and the North American oil market "has turned." He expressed optimism that U.S. rig count seemingly bottomed out in May; U.S. drillers have added more than 40 since then, bring the total to 447 at the end of last week.
"Our customers are thinking about growing their business again, rather than being focused on survival," Lesar said. "There's a spring in their step that I didn't hear earlier in the year."
Part of that spring came from crude prices rising about $50 a barrel in June – even if it didn't last long, Lesar said. One customer, the CEO added, told him, "It's actually a light at the end of a tunnel and not an oncoming train."
Lesar projected modest improvements in the second half of the year and North American operating margins returning to profitability in the beginning of 2017. The international market will recover more slowly, he said.
Halliburton President Jeff Miller said he doesn't expect a return to 2014 when nearly 2,000 rigs were operating in the United States. In part, that's due to newer rigs that can produce more oil, more quickly that older models, which have been scrapped or mothballed. The industry only needs to double its current number of active rigs to come back strong.
"In the next North American cycle, 900 is the new 2,000," Lesar said.
The other challenge facing Halliburton and oilfield services is undoing the deep discounts offered to oil producers to keep their business during the bust. Those pricing levels aren't sustainable, Lesar said.
"Price negotiations have been a barroom brawl," Miller added.
Analysts said Halliburton has fared better than many of it competitors, but its comeback will depend on how fast and how far oil prices rebound.
"The vast majority of the industry is doing much, much worse (than Halliburton)," said Bill Herbert, a senior energy analyst at Piper Jaffray & Co., an investment research firm. Herbert said. "The industry is now in a deep hole, so it's going to take awhile to climb."