April 20, 2015 / 8:00 PM / 4 years ago

Lower cost cuts at Halliburton may give Schlumberger near-term edge

April 20 (Reuters) - Halliburton Co’s decision to cut fewer jobs and keep its logistics network intact to capitalize on its pending merger with Baker Hughes Inc could give Schlumberger NV an edge at a time when cost cuts look like the best way forward.

Halliburton is sticking to an “elevated cost structure” as it bets on its capacity to take on more work as a bigger company once the $35 billion deal closes, a move that could cost the company a 2-3 percent decline in near-time margins.

But work itself is scarce, with oil producers doubling down for a long downturn in the North American shale industry, which has been crippled due to a slump in global oil prices .

Schlumberger, the world’s No.1 oilfield services provider, recently wooed shareholders with 11,000 job cuts, in addition to the 9,000 announced earlier. In comparison, Halliburton has cut 9,000 jobs.

“I think in the very near term, Schlumberger is going to make more money than Halliburton because it’s not carrying the extra cost,” said BMO Capital Markets analyst Daniel Boyd.

Moreover, higher costs will hinder Halliburton’s ability to take on Schlumberger in international markets, which have been more resilient to the drop in crude prices.

“By leveraging both its technological and cost advantages, I think Schlumberger has the opportunity to take share in areas that are not a primary focus for Halliburton and Baker Hughes,” said Tigress Financial Partners analyst Philip Van Deusen.

But both Boyd and Deusen said Halliburton stands to gain in the longer term because of the deal due to benefits from synergies.

Halliburton has said it expects the Baker Hughes deal to result in annual costs savings of about $2 billion.

“... in a typical downturn we would have reduced our operating cost structure more than we have done ...,” Halliburton Chief Operating Officer Jeffrey Miller said on a post-earnings call on Monday.

“While this decision burdens current margins, it is clearly the right thing to do in the long run.”

Halliburton’s margins in the January-March quarter slid more than 11 percentage points from the October-December period, according to Barclays, while Schlumberger’s margins fell by 6.7 percentage points.

“Schlumberger’s margins in North America will likely be higher than Halliburton’s during the downturn,” said Evercore ISI analyst James West.

Still, margins at both companies were ahead of the estimates of most analysts tracked by Reuters. (Additional reporting by Sneha Banerjee and Kanika Sikka in Bengaluru; Editing by Sayantani Ghosh and Saumyadeb Chakrabarty)

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