Friday, January 30, 2009

Layoffs may pose larger threat to industry

Companies across the board are scrambling to save cash and reduce debt in light of the worst economic crisis in decades. No one is immune. Not even the energy companies.

Drastic times call for drastic measures - and that means layoffs. According to many companies, layoffs come only after all efforts to cut costs are explored internally. Apparently, that time has come.

Oilfield services giant Schlumberger was one of the first major companies in the sector to announce job cuts. A 17% drop in 4Q08 earnings has helped spur a 5% cut of its global work force – roughly 5,000 jobs. Up to 100 employees will be laid off in Houston.

Another oilfield services giant, Baker Hughes, is poised to top the number of workers laid off in Houston. The company is expected to reduce its workforce by 4%. Of the 1,500 planned cuts, 200 are expected to be cut right here in the company’s home town.

Halliburton’s 4Q08 earnings were down 32%. The company has said it will lay off an unspecified number of employees.ConocoPhillips said it plans to cut 4% of its 33,600 workforce. That’s a loss of nearly 1,300 employees, not including additional cuts planned to its contracted workforce.

What we’ve been hearing repeatedly regarding headcount reductions is that companies are ‘doing what’s necessary for the short-term’ in order to ‘emerge stronger’ on the flip side of the downturn.

But what about the long-term implications? Factor in the ‘talent shortage’ that companies in our industry have been facing for years. Depending on the length of the economic crisis, layoffs across the board, from management to contractors, could potentially add to an existing problem.

I first wrote about the talent shortage in the October 2005 issue of Oil & Gas Financial Journal. One reason for the shortage centered around the drastic layoffs during the bust cycles of the 1980’s and ’90s. This left the general public - including those students who may have otherwise entered the field - with a negative perception of an industry that downsizes its workforce every time oil and gas prices collapse.

The topic came up again in September 2006. The article focused on the transfer of knowledge from senior-level professionals to entry-level and mid-career professionals. The learning curve is steep. It can take up to a decade for a new graduate to ‘learn the ropes.’

While I can’t say I’m experiencing déjà-vu – I wasn’t old enough to understand the bust of the 80’s and wasn’t old enough to care about the bust of the 90’s – I’m cognizant of what’s occurring now and wondering if we’re trading one problem for another, and effectively exacerbating an existing one.


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