To Resist Oil Industry Layoffs, Some Firms Cut Wages
13 October 2015 - 10:30AM
Dow Jones News
By Chester Dawson And Benoît Faucon
As layoffs become the energy industry's main response to low oil
prices, a handful of producers are aiming to trim personnel costs
without pink slips by spreading the pain among their employees.
Companies including Occidental Petroleum Corp. and Canadian
Natural Resources Ltd. are employing hiring freezes, caps on
bonuses, and even across-the-board wage cuts to preserve jobs. They
and others that already have reduced payrolls--including many
drilling and well servicing firms--are reluctant to slash further,
say energy-industry experts.
In part, they're trying to avoid the type of skilled worker
shortages that followed mass job cuts in prior downturns. But it's
also because their businesses can't succeed without sufficient
staff, especially if the downturn in oil prices reverses
course.
"There's no more fat to be cut," said Deborah Byers, a partner
at consultants Ernst & Young in charge of its U.S. oil and gas
practice.
More than a year after oil prices began their descent to under
$50 a barrel from over $100, the number of energy-company layoffs
world-wide has topped 200,000, says Graves & Co., a Houston
consulting firm. More cuts are expected because crude shows little
sign of rebounding soon.
Occidental Petroleum has avoided mass layoffs so far. The
Houston-based company told its employees last month it will cap
bonus payments this year and freeze salaries into early 2016,
according to an email reviewed by The Wall Street Journal.
Noting that annual cash flow drops by $120 million for every $1
decline in the price of oil, Chief Executive Steve Chazen warned in
the email that bonuses "may be further reduced or eliminated" and
some jobs could still be cut if oil prices don't bounce back. In
the latest quarter, the company's cash flow was $1.5 billion, down
from $2.1 billion a year earlier. Spokeswoman Melissa Schoeb
confirmed the action and said Occidental is "taking aggressive
action to ensure the company's long-term success."
The last time Occidental disclosed large staff layoffs was in
1998, when it shed hundreds of jobs and cut its head-office
workforce by half. That was during another period of mass layoffs
in the oil industry stemming from low crude prices and
consolidation.
Those cutbacks led to a dwindling number of petroleum engineers
followed by what some described as a "lost generation" that left
the energy industry exposed to shortages of high-skilled
professionals a decade later.
"Everybody that went through this before all knows it really
hurt oil companies in terms of not having a generation ready to
move into management positions," said Dan Hill, who heads Texas
A&M University's petroleum engineering department. As students
graduate, "We're encouraging companies to hire them as technicians
for half of what they'd earn as petroleum engineers," he said.
Average annual pay for petroleum engineers hit $147,520 at the
height of the boom in mid-2014, or more than three times the level
of the average U.S. worker, according to the federal Bureau of
Labor Statistics. That helped draw in more people; according to the
agency, the number of petroleum engineers swelled to 33,740, three
times the number back in 1998.
Continental Resources Inc., a major shale-oil producer, has
vowed not to use the crude-price slump as an excuse to lay off any
of its roughly 11,000 employees and says it has no plans to cut
their pay. But the Oklahoma City-based company has embarked on a
belt-tightening campaign.
"If there were free peanuts in the break room before, chances
are they won't be there now," said Kristin Thomas, a company
spokeswoman.
Louise Wilson, a Calgary-based partner in Deloitte's Human
Capital practice, said that "the undercurrent here--and companies
are very careful how they talk about this--is chipping away at the
entitlement mentality that has developed over time within the
industry."
Canadian Natural Resources, one of Canada's biggest oil and gas
producers with 7,600 employees, also has ruled out job cuts in
favor of pay cuts. In an email to staff reviewed by The Wall Street
Journal, President Steve Laut promised "not to undertake employee
reductions due to current low commodity prices (i.e., no
layoffs)."
But the company said it would cut wages for all salaried
employees in tiers, trimming pay above 50,000 Canadian dollars
($37,000) a year by 5% and any pay above C$100,000 by 10%.
"Graduated salary reductions are the preferred way to reduce
costs, as it allows everyone on the team to stay together, and more
important, work together, to focus on creating value in these
challenging times," Mr. Laut wrote.
Write to Chester Dawson at chester.dawson@wsj.com and Benoit
Faucon at benoit.faucon@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
October 12, 2015 19:15 ET (23:15 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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