Job cuts loom for US indies

OREANDA-NEWS. September 24, 2015. US independent oil producers may follow ConocoPhillips in reducing headcounts as a drop in crude prices to six-and-a-half year lows renders previous cost-cutting efforts inadequate.

Global upstream spending may decline by 20pc this year over last and by another 3-8pc in 2016 in the first two consecutive years of decline since 1986-87, UK bank Barclays said. The steepest cuts will be among the North American producers, at 35pc in 2015. Spending may fall by another 10-15pc in 2016, assuming the Nymex WTI contract stabilizes around \\$50-\\$60/bl.

"North America is the most cyclical energy market globally, so it comes as no surprise that it has been hit hardest during this downturn," it said.

So far oilfield services companies have been at the forefront of layoffs. But ConocoPhillips' move to cut 10pc of its global workforce from a total of 18,100 may foretell wider cuts, after Goldman Sachs predicted that crude could fall as low as \\$20/bl if stockpiles continued to build toward capacity.

"And while there remains additional force reduction potential in the oilfield services sector, upstream organizations within the producer community appear to be just getting started with their layoffs," Tudor Pickering Holt said.

An analysis of output per employee of the top 12 independent oil and gas producers pitches ConocoPhillips among the worst, while Continental Resources and EOG Resources emerge as the most lean.ConocoPhillips, the world's biggest independent oil and gas company, produced 1.595mn b/d of oil equivalent (boe/d) in the second quarter, which means output per employee was 88 boe/d. Even after factoring in the 10pc cut, per employee output would be around 98 boe/d.

In contrast, key Bakken producer Continental' per employee output is nearly double at 191 boe/d, with production of 227,000 boe/d in the second quarter and 1,188 employees. EOG follows at 187 boe/d, with output of 561,000 boe/d and a workforce of 3,000.

To be sure, internationally diversified producers such as ConocoPhillips, Anadarko, Apache, Occidental and Marathon have higher staffing levels because conventional oil and gas projects, particularly in the deep waters, are typically much larger than unconventional onshore shale oil operations. Companies like ConocoPhillips also have presence across businesses like liquefied natural gas (LNG) and oil sands in Canada, whose staffing requirements are again different.

ConocoPhillips will further lower spending if oil stays weak, chief executive Ryan Lance said at the Barclays CEO Energy-Power Conference.

"We are not hitting the panic button, but certainly paying close attention to the market," Lance said. "We'll maintain our balance sheet strength and still have significant capacity to weather an extended downturn if that turns out to be the case."

Of the US-focused producers, Pioneer's ranking was the lowest, with a per employee output of 48 boe/d, based on a staff of 4,075 and second quarter production of 197,000 boe/d. The independent has been outlier so far, adding two rigs every month for the rest of the year, which will increase its capex by \\$350mn to \\$2.2bn this year. Solid hedges covering nearly 90pc of its output this year and about 85pc in 2016 is giving the producer confidence to add rigs.

Continental Resources made a further cut to its 2015 capex guidance by as much as \\$350mn. "While we do not believe today's lower commodity prices are sustainable long term, we are committed to living within cash flow until they recover," chief executive Harold Hamm said.

The major job cuts so far this year have been at Schlumberger, which has shed 15pc of its 115,000 workforce, and Halliburton, which has also cut by 15pc, or about 9,000. Baker Hughes has eliminated 10,500 jobs, representing 17pc of its total.

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