Analysts and market experts are expecting the current trend of suppressed demand for oil and gas to get prolonged which will further increase problems for companies in this sector which have already been hit hard by the novel coronavirus pandemic. This has resulted in companies in this segment to cut down on staff in order to reduce costs and survive in the market.
Announcement for reduction of its workforce by 15 per cent, or about 14,000 people, has been announced by Exxon Mobil Corp while its rivals like Chevron Corp and Royal Dutch Shell Plc have also made similar announcements.
According to Rystad Energy, so far this year, jobs of as much as 400,000 employees in the oil and gas sector have been retrenched and about 50 per cent of those are in the United States which is the headquarters of a number of big exploration companies and most large oil service companies of the world.
The industries of energy, travel and hospitality have been the hardest hit by the Covid-19 pandemic even while large swathes of the global economy have also been devastated.
Even before the pandemic hit, weak returns were already ailing energy companies, especially those ones based in the US shale regions. But the companies have been put under further pressure as investors demanded them to improve margins – which meant reducing costs.
“The Covid-era reality across the oil industry is austerity on an epic scale. There is no escaping the fact that this means, among other things, job losses,” said Pavel Molchanov, analyst at Raymond James.
In recent week, plans to cut staff have been announced by Chevron Corp, Australia’s Woodside Petroleum Ltd and Canada’s Cenovus Energy Inc in addition to Exxon.
In the spring, there was a decline of about a third in the global fuel demand. And with major economies resuming lockdowns to contain resurgence of the pandemic consumption of fuel remains lower than what is as a year ago even though there has been a recovery to some extent in fuel demand.
US, the largest crude oil producer of the world, has been particularly hit hard by the downturn. The most deaths in the world from coronavirus has been reported by the country while the pandemic related economic hit has pushed unemployment levels to about 8 per cent.
US crude oil production reached its peak in 2019 with output of almost 13 million barrels per day – mainly through the use of fracking technology used by shale companies. However that record peak level is unlikely to be reached ever, said US Energy Secretary Dan Brouillette. The hit of the pandemic has been hard on the shale industry because it is easy for oil firms to cut staff and spending in the sector.
Job cuts also occurred because of consolidation in the industry.
25 per cent of the staff acquired with Noble Energy is being planned to be removed by Chevron which had acquired it this month.
While claiming that its oil output likely peaked last year, Shell now plans to cut down on about 10 per cent of its total workforce.
And after acquiring rival Husky Energy Inc, Cenovus will be cutting about 25 per cent jobs, the company has said.
(Adapted from BusinessWorld.in)