The CEO of oil driller Baker Hughes says there's been 'a bit of drama in the marketplace'

Hulton Archive

The response to the oil crash has been brutal.

Energy companies have laid off thousands of workers; on Tuesday morning, Baker Hughes announced it cut its workforce by 17% in the first quarter, which totals 10,500 positions.

CEO Martin Craighead described this as "the really crappy part of the job" during the company's earnings call.

Halliburton and Schlumberger also recently reported layoffs in their earnings statements.

Companies have also reduced capital spending plans, as the 45% drop in oil prices dented their earnings.

Rig counts in North America - published weekly by Baker Hughes - have plummeted since late last year.

During the earnings call, an analyst asked Craighead whether there's an identifiable point where the industry decides that the cut in rig counts is enough. This was his response (emphasis ours):

"Absolutely. But it's amazing how you can sit here today and have an opinion as [to] where we think that overshoot might be. And as you change the environment your interpretations of what's possible changes as well. So I don't for a second believe that any one of us is very good at - as you highlighted - for 100 years, this industry has not done a great job in being able to predict things.

And I do get a bit of a feeling if you will that it's - I don't want to say it's overdone, but I'd say there's a bit of drama in the marketplace. The abruptness with the drop-off, it's almost like the self confirming negative bias if you will, right. And so, I don't know where these prices are going to land. But I do get a sense that it's got a little bit more drama associated with it and maybe the normal appropriate economics would justify."

When another analyst pressed Craighead on the specific rig count where the market will balance out, he declined because it's still too uncertain.

"There's a lot of uncertainty right now still on what's taking place in this dynamic market, so I'm just not sure that we can give you something that would be helpful," he said to another analyst who asked for more details on the second quarter outlook.

For their specific outlook, Baker Hughes forecasts that rig counts will fall 30% in North America in Q2 quarter-over-quarter, and international declines will follow as well.

So, because no one knows when the market will recover, it's hard for companies to respond in a way that "appropriate economics" would justify. And that means the response so far may have been overdone.

In the first quarter, Baker Hughes posted a net loss of $589 million, or $1.35 per diluted share, versus a profit of $328 million, or 74 cents per share the previous year. Revenues fell 20% to $4.59 billion.

Expectations were for adjusted earnings of $0.46 per share on revenues of $5.3 billion, according to Bloomberg.