Baker Hughes Loses Petrobras Contracts to Halliburton, Forced to Cut Workforce

Baker Hughes, the world’s third largest oilfield services provider, has had to cut its Brazilian workforce after losing vital contracts with Petroleo Brasileiro (Petrobras) to its fierce competitor Halliburton Co.

Jose Rangel, the head of the Sindipetro Norte Fluminense oil workers union, told Bloomberg that about 150 workers in the past two months have lost their jobs and that the company has announced plans to fire 150 more in the near future.

The state owned Petrobras, which controls about 92% of all Brazilian oil production, has been on a mission to reduce its costs since Maria das Gracas Foster was appointed as the new Chief Executive Officer. This means that oilfield service companies are offered far smaller contracts with smaller margins. Halliburton has also had to reduce its workforce by about 100 people, despite winning the new contracts.

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Brad Handler, an analyst at Jefferies Group LLC, spoke to Bloomberg via telephone to explain that “Baker Hughes has repositioned assets and staff out of Brazil after losing market share to Halliburton. Halliburton ramped up its capabilities in anticipation of performing more work, but is now seeking to trim these after volumes are less than expected.”

Baker Hughes’ share of the Brazilian offshore oilfield market has fallen to around 20% from 50%, whilst Halliburton has managed to grow their share to 50%. Despite Halliburton’s increased market share, the overall market size has fallen, as Petrobras has experienced much higher flow rates from its wells, leading it to reduce the number of wells to be drilled.

Jeff Miller, the Chief Operating Officer at Halliburton, said that “in Brazil, we’ve seen a significant reduction in drilling activity over the course of the year with a shift in focus. We’re working with our customer to right-size our operational footprint, but we expect reduced activity levels to extend through the fourth quarter and continue into the next year.”

The fact that Petrobras is the dominant producer in Brazil, means that service companies have little defence against any changes it makes in its spending. The decision to offer lower margins in contracts is not one that service companies can avoid by agreeing deals with other oil companies, as there are no others in the market.

By. Charles Kennedy of Oilprice.com