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Immediate impact of oil price fall – Industry goes for CAPEX cuts and laoffs

Author - Vinay Pawar   Date-February 27, 2015

The oil prices have gone down sharply since August last year and most analysts expect the price to remain in the range of $55-$65 in 2015 as the market remains oversupplied. This sharp fall in crude oil prices has hugely impacted the budgets of the oil and gas companies globally. As a result of this, companies have cut their capex and also laying off employee in huge number. 

Many companies have announced their planned investments for 2015 and it shows decrease in investments and job cuts. According to RBC Capital markets, oil and gas companies have already announced a cut in their 2015 capital expenditure in the tune of $86.4 billion to shield themselves from falling oil prices.

Chevron (CVX) said last month it plans to cut capital investments by 13% to $35 billion this year. Royal Dutch Shell (RDSA) plans to reduce spending by $15 billion over the next three years. ConocoPhillips (COP) is cutting spending by about 20% in the United States. BP has announced that it will cut its capital expenditure to $20 billion in 2015 down from an earlier estimate of $24-25 billion. According to some media reports, TOTAL will reduce its spending by 10 percent in 2015. Among supermajors, Exxon Mobil is yet to disclose its capex plan and the industry will have to wait till early March 2015. Among others, BHP Billiton (BBL) announced last month it was cutting its U.S. onshore rig operations by about 40% this year. WPX Energy Inc. expects to spend about $725 in 2015, which is half of what it had spent in 2014 (USD1.5 billion). In 2014 it deployed 16 drilling rigs which will be reduced to 6 in 2015. Houston-based Oasis Petroleum (OAS) announced a capex cut of 44% for their exploration and production.

Services companies specially drilling companies will also suffer from low realization prices for crude oil as oil companies will look to curtail drilling activities and only invest in their most productive wells. Drilling activities have already gone down severely. US companies drilled 28% less wells in January 2015 as compared to June last year.

The impact of falling oil prices has also prompted job losses. Since the start of price fall, the industry has witnessed more than 21,000 layoffs. Schlumberger has already announced 9,000 job cuts worldwide. Weatherford will also cut 8,000 workers in the first half of the year. It announced the job cuts as it reported a $475 million net loss for the fourth quarter, wider than its $271 million loss a year earlier. When added to 6,000 layoffs from last year, the Swiss-based company’s total workforce will shrink 25 percent from the start of 2014. Baker Hughes Inc. has also announced to lay off 7,000 workers in the first quarter while Halliburton Co. will reduce its workforce in the Eastern Hemisphere by 1,000 and plans additional cuts in North America similar in size to its competitors.

Among few other jobs cut announcements:

-  Apache Corp. to layoff about 250 people

-  Shell to lay off less than 10 per cent of the 3,000 workers at the Albian Sands project, one of five major oil sands mining ventures.

-  BP to freeze pay of its 84,000 employees

-  As a restructure its underperforming Marcellus and Utica shale operations, Chevron plans to lay off 162 workers

Fewer investments and ultimately job cuts would continue to be the trend in 2015.