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Job Losses Galore Across the Energy Sector: What Lies Next?

Sayantika Bhattacharya

The Oil-Energy Market witnessed a massive downturn over the last few years. This lean period forced operators to cut down on costs significantly by suspending some of their major operations as well as trimming jobs while looking for innovative ways to churn out more oil and gas. While these strategic actions might improve profit levels to a certain degree, the overall sentiment surrounding the industry persists to be mostly negative.

Moreover, crude might experience a short-lived surge based on unforeseen geopolitical developments but prices are unlikely to eclipse the psychologically $60-a-barrel cap on a sustainable basis. As in the aftermath of the recent U.S.-Iran standoff, prices rallied to multi-month highs, attributable to concerns that escalating tensions in the Middle East could lead to supply disruptions only to spiral downward again when normalcy resumes. This is expected to keep the oil and energy sector’s profits under pressure. Moreover, there is a supply glut in the market, especially from the United States.

Industry Performance

Let’s take a look at the price performance of the oil and gas field services as well as the exploration and production industry, which are the two biggest energy components. In the past five years, the S&P 500 Index has surged 62.8% against the oil and gas energy sector’s 20.4% slump. During this period, the Zacks oil and gas field services industry dropped 37.7% while the Zacks oil and gas exploration and production plunged a whopping 54.1%.

Oil-Energy Sector Jobs in Jeopardy

In a bid to bounce back from the toil-effects of weak oil prices, Apache Corporation APA recently announced that it will slash the global headcount by nearly 500. Further, this upstream operator’s management stated that it plans to close its office in San Antonio, TX wherein it will eliminate 270 employees.

This Texas-based independent energy player realized that in order to enhance its operating efficiency despite challenging market conditions, it should lower costs substantially. The company decided to save $150 million a year and curb its 2020 capital expenditure by 15%.

The volatility in commodity price convinced explorers and producers to adopt a relatively conservative approach to capital investment programs.

This organizational restructuring is anticipated to help Apache achieve its purpose of minimizing expenses and optimizing operational excellence by testing and supporting its employees.

Also, the move comes just a day after Occidental Petroleum’s OXY lay-off announcement.

This Houston-based exploration and production company has been offering its employees a voluntary retirement option for quite some time now. It started this procedure in early August 2019 after Occidental completed a $57-billion (including debt) mega merger deal with Texas-based upstream company Anadarko Petroleum following prevalence in a bidding war with supermajor Chevron Corporation CVX. But this new job cut announcement is in addition to those voluntary exits.

For acquiring Anadarko, Occidental incurred a hefty debt and resorted to other borrowings as well. Until now, it repaid worth of $7 billion of the total debt load within five months of the deal's closure. The company will continue to lower its debt burden further in 2020 with proceeds from asset divestitures and free cash flows.

So, to streamline its portfolio by containing costs and mitigating its debt woes, Occidental decided to render a portion of its workforce redundant.

This vital step taken by various companies in the oil and energy market for facilitating strategic transformations to improve operational efficiencies and add shareholder value is not only limited to the oil and gas - exploration and production industries. Similar measures are also taken by a few players from to the oil and gas field services.

Last month, Halliburton Company HAL notified about curtailing staff strength by nearly 800 at its El Reno operation in Oklahoma. Further, it announced plans to close down its office in the suburbs of the same city.

Also, the move comes within two months of Zacks Rank #3 (Hold) Halliburton’s announcement of laying off 650 employees across four states, namely New Mexico, Wyoming, North Dakota and Colorado. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Halliburton noted that for operators in North America where oil production hit record levels, it’s more about returns than growth now. This Houston-based oilfield service provider perceived that to bolster its operational excellence despite a tough market landscape, it needs to check expenses by a huge margin.

Further, Texas-based National Oilwell Varco, Inc. NOV announced that it will retrench 85 personnel as it plans to shutter its equipment-making operations for offshore and onshore drilling rigs at its Galena Park facility due to the persistent drop in shale business, which  in turn, induced a fall in drilling and completion activity in the United States and Canada.

Moreover, Pumpco Energy Services, Inc., an affiliate of Superior Energy Services, Inc., widely known for delivering fracking services for well-digging completions, recently made 112 workers redundant at its Odessa, TX-based site. While RPC Inc. RES too confirmed to reduce part of its workforce.

What Lies Ahead?

The uncertainty around oil prices means that the commodity's future movement is anybody's guess. However, fundamentals suggest that the odds are firmly stacked against an immediate turnaround. And if there’s any further price decline, especially below the $55-a-barrel level, it would leave a significant impact on small-to-mid-tier entities, triggering another spate of job losses.

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National Oilwell Varco, Inc. (NOV) : Free Stock Analysis Report
 
Halliburton Company (HAL) : Free Stock Analysis Report
 
RPC, Inc. (RES) : Free Stock Analysis Report
 
Chevron Corporation (CVX) : Free Stock Analysis Report
 
Apache Corporation (APA) : Free Stock Analysis Report
 
Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report
 
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