Smith Tool Plans Further Layoffs, 20% Cut in Output

Responding to worsening fortunes in the oil industry, Irvine-based Smith Tool Co. officials said Tuesday that the firm will lay off an as yet undetermined number of employees Feb. 14 as part of a move to cut production by 20%.

Bob Gubrud, vice president and treasurer of Smith Tool’s corporate parent, Newport Beach-based Smith International, said employees were informed of the pending layoffs by notices posted on company bulletin boards. He said the company’s top administrators still are trying to determine exactly which jobs to cut and probably would have that information sometime next week.

A Smith Tool administrator, who asked not to be named, said the employee bulletin was posted last Friday and revealed that the company, which manufactures drilling bits and other products for the oil and gas industry, plans to reduce its production by 20%.

“We are scaling down to keep pace with the decline we are seeing in the industry,” the official said, noting the sharp drop in oil prices and in the number of oil drilling rigs operating in the United States.

He said the layoffs would affect both salaried and unsalaried employees. He added that cutbacks will be made at the company’s Irvine facility and possibly at other Smith plants in Mexico, Italy and Venezuela.

Over the last four years, Smith Tool has cut its work force by about 47% in a series of layoffs. Since December, 1981, when it employed 4,623 workers worldwide--including 3,901 in the United States--the company has cut its employment to about 2,430 worldwide, including 1,750 in Irvine, now its only domestic plant.

In 1985 alone, Smith Tool reduced its work force by 1,100 employees, the last 350 of whom received their pink slips in November.

Several oil industry analysts said Tuesday that Smith Tool’s pending layoffs are indicative of an expected yearlong “belt tightening” among oil service companies nationwide.

“The whole industry is going into a difficult year. . . . This year is going to be just terrible,” said Herb Hart, an energy industry consultant for S. G. Warburg, Rowe, Pitman & Akroyd Inc. in San Francisco.

He said Smith will be hit harder than some other oil service companies because it manufactures products geared primarily for oil exploration, which is coming to a near halt as oil producer customers worry about a further fall in oil prices.

Since the end of November, Hart said, the spot market price of a barrel of West Texas Intermediate crude (a marker for the industry) has plunged to $15.44 from $31.

And Everett G. Titus III, vice president of oil services for L. F. Rothschild, Unterberg, Towbin in New York, noted that the number of domestic drilling rigs in the U.S. has declined 29.8% in the past year, falling from 2,271 to 1,594 as of this week.

Titus said the rig reduction “implies activity is going to be extremely poor in ’86.” In view of the immediate prospects for the oil industry, Titus said that another layoff at Smith seems sensible. “Most of the better managed companies are taking those kinds of steps,” he said.

While Smith Tool fights to survive a dramatic downturn in its industry, its parent, Smith International, is waging an equally dramatic fight for survival in U.S. District Court in Los Angeles, where a federal judge is hearing arguments in the damages portion of Houston-based Hughes Tool Co.’s $1.2-billion patent infringement lawsuit against Smith.

Titus said Tuesday that, if Smith Tool loses its court battle to reduce Hughes’ damage claim, “it will more than wipe out all the (Smith) stockholder equity” and will “probably spell the end of Smith as an independent company.”