It’s been tough for US oil companies. And even tougher for their investors. The hero du jour is Marathon Oil.
Today afterhours it reported an eye-popping 48% plunge in revenues in the second quarter and a net loss of $386 million. To stem the bleeding, it slashed capital expenditures by 40% from the prior quarter. “Importantly,” as it said in the press release, it was able to reduce production costs in North America by over 30% per barrel of oil equivalent from a year ago. And it cut is general and administrative costs by more than 20%.
The key to survival in this environment of plunging revenues is conserving cash and slashing expenses, including “workforce reductions,” as the company calls them. And something else….
Marathon proudly said that its global production from continuing operations (excluding Libya) rose 6% from a year ago, with its US production soaring “nearly 30%.” And it’s not backing down either: Total company production would increase 5-7% year-over-year, with a 20% jump in production in the US.
Thus it joined the cacophonous chorus of oil and gas companies that have been bragging about production increases despite the oil glut, despite the oil price plunge, despite the mayhem in the oil markets, just when investors are desperately waiting for the ever elusive production cuts.
BP’s debacle is even worse. Last week, it announced a loss of $6.3 billion and warned of more layoffs to come. It raised the restructuring charges for those layoffs from $1 billion, put forward in December, to $1.5 billion. “We will continue to identify more opportunities for simplification and efficiency,” is how CEO Bob Dudley put it in perfect corporate-speak. And cuts are now coming at “a faster pace.”
Dozens of companies in the oil & gas sector have announced job cuts since last fall, with some of the global players, like Baker Hughes, pushing their layoff numbers into the low five-digits. It has been a relentless litany.
In its June Job Cut Report, Challenger found that US employers had announced 287,672 job cuts during the first half of 2015, up 17% from the same period in 2014, the worst first half since 2010. For a reason:
The first-half surge was due largely to the decline in oil prices, which rippled through the energy and industrial goods sectors. All told, the drop in oil prices was blamed for 69,582 job cuts in the first half of 2015. That is second only to the 86,978 job cuts attributed to “restructuring.”
But the announcements of global companies don’t always make clear how many of these cuts are going to happen in the US. And given the vast US economy, these energy-related job cuts don’t readily stick out in the various reports on the US employment situation.
ADP, in its National Employment Report today, guessed that the economy in July created 185,000 new jobs, including whatever jobs it destroyed in the energy sector. It disappointed those who’d expected 215,000. But that’s still quite a few jobs. And new unemployment claims have been bumping along multi-year lows. So nothing particularly alarming in these numbers.
The Bureau of Labor Statistics figured that the number of jobs in “oil and gas extraction” peaked in October last year at 201,500 and has since fallen 4% to 193,200. Total employment in oil & gas extraction and support activities peaked at 538,000 and has since dropped 7%.
Among the nearly 142 million total non-farm jobs in the US, half a million oil & gas jobs isn’t a big portion. But for folks working in the sector, it’s a different story. On an anecdotal basis, it sounds like this (from David in Texas):
A friend’s son went to work for BP right out of college a couple of years ago for what to my friend was a shockingly high salary. At the moment, he’s still employed there, but we’ll see how long this lasts. Another friend’s son who worked for Baker Hughes has already been laid off.
This has been the pattern: a careful trickle of layoffs here and there, spread out over months, not the mass extinction of jobs that we saw during the Great Recession. And this strategy has one big side effect: by now, hardly anyone pays attention to it anymore.
Moody’s Analytics, in conjunction with the ADP National Employment Report, came up with its own estimates of the bloodletting. Chief economist Mark Zandi told reporters today that the oil & gas sector has been laying off 10,000 to 15,000 workers a month so far this year. Unless the price of oil suddenly experiences a miraculous recovery, layoffs would likely continue for the rest of the year at this rate, it said.
Alas, West Texas Intermediate is now in its eighth week in a row of declines. At $45.21 a barrel, the lowest since March 20, it’s just a hair from setting a new low for this oil bust. Not a whole lot stands in its way.
So if Moody’s estimate for the oil & gas sector pans out, it would translate into a range of 120,000 to 180,000 job cuts this year, in an industry that at the beginning of the year had barely over 500,000 jobs. At the upper end of the range, it would represent the elimination of 36% of the oil & gas jobs in the US. Though it doesn’t stick out in the national figures, it would be a true jobs massacre.
So the oil & gas sector isn’t exactly in a rosy environment, with a number of companies entering a “liquidity death spiral.” Read… Oil Re-Bloodies the “Smart Money”
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So is there a glut of oil from over producing , or a worldwide economic contraction? Or both?
If you’re interested in the details, this a thorough report that sheds light on global supply/demand.
https://www.iea.org/oilmarketreport/omrpublic/currentreport/
sounds to me like it is both; the flailing oil producers are trying to force some kind of pretense of profit through sheer volume…a real recipe for total failure, unless your business model switched from bringing oil to a market to wooing capital from desperate investors.
Back in the 1980s we had a joke that the difference in a geologist and a pigeon in Houston was that the pigeon could still make a deposit on a Mercedes. In the 1960s after another massacre the joke in the geology community was that the best oil and gas exploration team in Houston worked in J.C. Penny’s shoe department. But, this time was supposed to be different. Alas.
The oil industry pays high salaries, but it is an employment mine field. I hope anyone who has been working put something aside for the inevitable job loss. In prior layoffs, many former petroleum geologists and engineers often found employment with government entities like the USGS or BLM, or state geological surveys or regulatory agencies. But since the first round of the Great Recession, all of these government agencies have cut back, some drastically, in employment as part of a great reset. I imagine some will find work abroad, as many did in the 1960s. But given the current global downturn, I don’t know how viable oversees employment is.
Good luck folks. I feel you pain.
And even these numbers are likely massively under-reporting since they won’t count non-renewal of contracting companies among the lay-offs. BHP Billiton (Iron Ore) in Oz announced 500 staff culled but I personally redacted the accounts of over a 1000 and reckon the figure nearer 5000. They just didn’t renew the PO (Purchase Order) for dozens of agencies. It was left to the agencies to fire their own workers allowing BHPB to avoid the PR hammering in the press..
It’s not just the oil patch. It’s construction, tech, retail, everything except lobbyists.
What’s going on in Alberta, summed up by an albertan:
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I was briefly working in the RV business. RV dealers are getting killed. Sales are plummeting, and there is sales guys that cannot make ends meet. One of them went to stock shelves at Walmart at night to put food on the table. That’s just one example of the trickle down I have seen.
My buddy is a professional carpenter, and he specializes in kitchen reno’s. Nobody is spending money right now, and he has had a couple jobs cancelled because people are nervous.
My local pub is dead, and the owner doesn’t know if he’ll make it through winter. The gal working there is thinking of moving back home to BC, as she just isn’t getting enough tips.
And obviously, the guys and gals right in the thick of things be it the service side or office side. My heart bleeds for those people. Some of them are going to have destroyed credit by no fault of their own. Even the most financially responsible people are starting to run out of savings.
When you work in retail lending like I do, and see peoples debt, late payments….etc. You get a very different picture of what is going on. It can be very depressing, and scary. Some very good people, are in some very bad, troubling situations right now, and they don’t deserve it…. unless you ask Tinordi I suppose.
Mick:
You have perfectly described life in the oil patch. During the 1980’s bust, I watched many good friends blow through savings, gobble up credit and many ultimately losing homes just trying to hold on until “times got better”. In 1982 the slogan was “Stay alive ’til 85” when it was all going to get better. And 1985 came and went without getting better. People who never dreamed they would ever consider bankruptcy did indeed have to. I understand that you feel bad about the good people you know having hard times. Take it from one who has seen this movie before; even if you could have foreseen the present circumstances and forewarned them, they would have made the same decisions. The lure of good money in a dynamic and exciting industry wins out almost every time. And when the big money is rolling in, it’s never going to stop. Until it does.
The obvious cause of the falling price is overproduction, led by record setting exports by OPEC, at very low prices. Their intent was to cut the legs out from under our new fracking natural gas industry, and it is working. Nice friends of ours.
Almost every commodity price is falling – not just oil.
Is that because we suddenly have over production of all of them – from copper to milk powder?
Or is it perhaps because China is crashing (exports down 8.3%) — Japan is dead on arrival – the EU is smashed – the BRICS are done — the US is a total mess
Could it be the central banks are now pushing on a string?