Oil Majors In Distress

February 15th, 2009

Indications emerged, at the weekend, that the big oil companies operating in the country are planning to slash the size of their workforce. They are also placing embargo on employment following financial and operational distress arising from falling oil prices.

The plan is said to have been hatched at the headquarters of the major oil companies overseas after a meeting of their top executives, worried by the great fall in oil prices from its peak of $147 a barrel in July 2008, to $35 a barrel as at Friday. The great fall in oil prices has left the oil companies with far more lower incomes than in the recent past. Shell recorded its first quarterly loss in a decade of $2.8 billion. BP Plc had its first loss, in seven years, of $3.3 billion. France’s Total SA had a quarterly loss of 794 million Euros. Also Exxon Mobil net income has tumbled.

The new development regarding oil companies workforce is somehow not unexpected as the oil companies started slashing investment in the face of a $100 per barrel collapse in crude prices.However, insiders say they are keen on avoiding past mistakes and to gain from others’ weakness. The biggest players are keeping spending steady.

A recent summary of oil companies’ capital expenditure (capex) plans for 2009 revealed much:British Petroleum (BP), Europe’s second-largest oil company, said that it expected organic capex of $20-22 billion (14 – 15.5 billion pounds) in 2009, compared with $21.7 billion in 2008.

Royal Dutch Shell, the world’s second largest non-government controlled oil company by market capitalisation, said on January 29, that it would lift capex to $31-32 billion, excluding acquisitions, in 2009, from $30 billion in 2008.This is just as Chevron, the second-largest U.S. oil company, said in late January, that its 2009 capital spending program will total $22.8 billion, the same as in 2008. Other giant oil companies such as French oil group, ConocoPhillips, the third largest U.K company among others, had similar plans to cut investment.

In Nigeria, the Niger-Delta crisis which has led to declining incomes, insecurity and withdrawal of oil workers, is a major driving factor. Royal Dutch Shell Plc, one of Nigeria’s main oil giants at the weekend, declared force majeure  on oil loadings from its Bonny terminal in the country. The oil gaint said the declaration of force majeure took effect on Feb.10, The declaration of this force has a direct bearing on Nigerian oil supplies.Force majeure, provides legal protection for the company not meeting its contractual obligations with customers and it has been declared severally by the company following incessant militants attacks on its facilities

Shell’s declaration of force majuere will mean more dwindling incomes for both the oil giant and Nigeria. Chevron and other major oil companies operating in the country have similar experiences as far as the issue of dwindling revenue and insecurity is concerned. Already the oil companies have started withdrawing expatriate workers from the countries Niger-Delta area. These are all noticeable signs of distress.

LEADERSHIP SUNDAY investigations revealed that, aside the fall in oil prices, the oil companies operating in Nigeria currently spend unimaginable amounts of money to provide security for their staffs, especially those working in the Niger Delta region. Facts show that the oil companies jointly spend close to $3.7 billion on the security of workers and installations to avoid attacks by rebel gangs who have become popularly known as militants.

The oil companies have declined comments on the issue of embargo on employment and possible job loss. The issue is considered very sensitive and an internal e-mail of the Royal Dutch Shell Plc spotted by Reuters has confirmed the development from the Shell end.

According to the internal e-mail seen by Reuters, Shell plans to trim its workforce and leave vacancies unfilled and to “ruthlessly” review its use of contract staff.

Shell is a global group of energy and petrochemical company with 104,000 employees in more than 110 countries who help in meeting the world’s growing energy demand.

The e-mail, sent by a senior executive in Shell’s core exploration and production division, told managers “the world has changed” after crude prices collapsed from over $147/barrel in July to around $40/bbl now.

“Do not fill vacancies … Reconsider how hard to hold on to securing current staff that may be on the fence re. retirement,” Chris Haynes, Vice President Technical, EPT Projects said in the email.

The e-mail was reportedly sent on his behalf by the head of human resources for the unit. Shell declined to comment on the email.

Contract staff, on which Shell, like other oil companies, relies heavily to help operate its facilities, are to be targeted in the cost-cutting drive.

“Ruthlessly review third parties costs … Review necessity of contract staff as contracts expire, renew by exception only.”

The company is also targeting savings on information technology and travel costs. However, Shell, the world’s second-largest non-government-controlled oil company by market value, will continue with its 2009 graduate recruitment plan.

Shell sources said, the company did not have targets for large job cuts, but one said there might be some “fine-tuning”.

According to Reuters, in recent years, senior executives at big oil companies complained of a shortage of experienced staff and went to great lengths to retain employees and even coax staff out of retirement. The moves follow pledges by Shell to continue investing, despite the downturn in crude prices. The company plans to invest $31-32 billion in projects this year, compared with $30 billion last year.

Some analysts, in the oil sector expressed dismay at the plans by Shell and other unidentified oil companies to halt recruitments and slash workforce. The oil companies reaped huge profits when oil prices where at their peak last year.

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