Baker Hughes Inc. has laid off more people than anticipated and closed 140 facilities worldwide to cope with the downturn in oilfield services. “Unfavorable market conditions” are expected to persist, CEO Martin Craighead said Tuesday.

“Our first quarter results are a reflection of the extreme market forces faced by our industry since late December,” Craighead said in announcing the quarterly results. “Consistent with past downturns, many of our customers have curtailed or canceled projects. The reduction in activity can clearly be seen in the North America rig count, which has been cut in half, dropping by more than 1,000 rigs so far this year.”

The outlook in North America through the second quarter looks no better, except perhaps in the deepwater Gulf of Mexico (GOM).

Between April and June, North American rig counts are expected to continue declining “across all onshore and shallow water markets.” The deepwater rig count in the GOM is expected to remain stable and to include a favorable mix of completions activity. However, in aggregate, the North American rig count in 2Q2015 is projected to decline by about 350 rigs, or 30%, from the first quarter exit rig count. As the quarter progresses, the pace of rig count declines is anticipated to slow.

Besides lower activity levels during the first quarter, Craighead said, “strained capital budgets have prompted customers to decrease their spending per well, including a reduced appetite for premium services. As dayrates for drilling rigs have fallen sharply, so has the demand for high technology products, which are engineered to reduce the time to drill and complete a well.

“In the United States, some customers are electing to defer completions altogether, and we estimate that as many as 20% of the recent wells being drilled have been placed in inventory to be completed at a later date. Although we believe this customer reaction is transitory, the reduced consumption per well has contributed to the oversupply of our industry, leading to an unfavorable pricing environment.”

In addition to consolidating operations to mitigate market conditions, “we made the decision to increase our headcount reductions to a total of approximately 10,500 positions, or 17% of our workforce, which is 3,500 positions higher than what we previously announced.” The company had announced early this year it would lay off about 7,000 employees by the end of March (see Shale Daily, Jan. 20).

The facility consolidation and the job cuts combined have reduced costs by more than $700 million on an annualized basis, Craighead said.

“Looking out to the second quarter, we expect unfavorable market conditions to persist,” he said, echoing comments by top executives with Schlumberger Ltd. and Halliburton Co. (see Shale Daily, April 20; April 17).

“North America and international rig counts are projected to continue declining across most onshore and shallow water markets, which would further intensify the oversupply of oilfield services. We will continue monitoring market conditions closely and will take actions as necessary to optimize efficiency, while retaining the capacity to flex up when market conditions improve.” In spite of the tough conditions, the planned merger with Halliburton is progressing smoothly, according to Craighead.

Because of various restructuring charges and merger costs related to the pending merger with Halliburton, Baker reported a net loss in 1Q2015 of $593 million (minus $1.35/share), compared with year-ago profits of $328 million (75 cents). Revenue fell 20% to $4.6 billion. Capital expenditures were $315 million in the first three months of this year, versus $439 million in the year-ago period.

North American revenue declined 28% year/year to $2 billion, primarily driven by a sharp drop in onshore and shallow water activity.

“Compared to the first quarter of 2014, the average U.S. rig count decreased 21%, which includes a decline of approximately 880 rigs, or 48%, year-to-date,” the company said. “Activity reductions were further exacerbated in the U.S., where it is estimated that as many as 20% of the wells drilled in the first quarter were placed in inventory, uncompleted.

“Canada, which normally sees peak activity levels in the first quarter, instead experienced a pronounced drop in activity as customers elected to halt operations earlier than normal. Compared to the first quarter of last year, Canadian rig counts were 40% lower this year. Activity was also down in the Gulf of Mexico as shallow water rig counts dropped 30% on average versus the prior-year quarter.”

The decline in drilling activity and well completions across North America “negatively impacted all product lines. Additionally, capital-intensive product lines such as pressure pumping, coiled tubing and wireline services experienced a significant oversupply of equipment in the market. Deepwater operations in the Gulf of Mexico remained steady, including increased completions activity and solid utilization of the company’s fleet of stimulation vessels.”

North America adjusted operating profit margin was negative 2.5% for the first quarter, representing a decrease of 1,330 basis points versus a year ago. Margins were impacted by the strong drop in activity resulting in reduced demand and unfavorable market conditions. Profit was further impacted by $26 million in reserves for doubtful accounts and inventories. North American decremental margins were 41% sequentially and “substantially lower than the decremental margins from the most recent downturn in 2009.”