Oil explorers are seeking large discounts from contractors and sending some projects back to the drawing board to find cheaper ways to build them after crude prices dropped by half in a year.
Many already announced multibillion-dollar cuts three months ago when they released first-quarter results to reassure investors they would be able to pay dividends.
“It’s really tough times for the industry,” BP Chief Executive Officer Bob Dudley said on Tuesday, comparing the market to 1986 when tumbling prices forced drastic cost savings, Bloomberg reported.
Producers are now feeling the layoff pain that has mostly plagued oilfield service providers over the past year.
Chevron said on Tuesday it is eliminating 1,500 jobs to curb spending by about $1 billion. The job cuts announced by the San Ramon, California-based producer ahead of its earnings release on July 31 represent 2.3% of its global staff.
Job cuts at exploration and production companies have accounted for roughly 10% of the more than 150,000 layoffs globally throughout the industry, according to Graves. That compares with more than 100,000 eliminated from service providers and drilling contractors.
While Schlumberger Ltd., the world’s largest services provider, said this month its layoffs are over with, its peers continued to eliminate jobs. Halliburton Co. and Baker Hughes Inc., the second- and third-largest service providers, each announced thousands more in job cuts last week. Saipem SpA, Italy’s biggest oilfield contractor, also said on Tuesday it plans to cut 8,800 jobs.
In addition to reducing their workforces, oil companies are “winding back” investments, consultant Wood Mackenzie Ltd. said this week, estimating they have canceled or delayed $200 billion worth of projects since mid-2014.
Crude prices have been slow to recover from six-year lows earlier this year as the US produces near the fastest rate in three decades and leading members of the Organization of Petroleum Exporting Countries pump at a record pace.
Brent oil on Tuesday touched $52.28 a barrel, compared with a price of almost $116 in June 2014.
BP said on Tuesday it will spend less than $20 billion this year, having said three months ago it would exceed that figure. The company initially planned to spend as much as $26 billion. Norway’s Statoil ASA reduced its spending forecast for this year by $500 million to $17.5 billion after crude prices resumed their decline.
The focus on cost cuts is likely to intensify as Total SA, Royal Dutch Shell Plc, Exxon Mobil Corp. and Chevron update investors this week on their plans.
“We are currently reviewing and adjusting our workforce levels in light of an extended period of low prices,” Daren Beaudo, a spokesman at ConocoPhillips, said in an emailed statement. “We’ve informed our workforce that reductions should be expected.”
If oil prices remain low, it is “difficult to see” how companies will fund dividends from free cash flow without further cutting investments in new projects, Edward Pybus, an analyst at Exane BNP Paribas in London, said in a note on Wednesday.
Chief executives have said they will do whatever it takes to protect payouts to shareholders. BP’s Dudley said on Tuesday his “first priority” is maintaining the dividend.
