One unintended consequence of the rapid drop in oil prices is that company managements in the sector desperately need to cut costs. Layoffs are usually a means to lower expenses, and oil industry executives mean to do just that. The pounding that industry workers have taken is not nearly over.
In the sixth annual outlook on the oil and energy industry from DNV GL, a safety management firm, survey respondents focused primarily on cost cuts. The results of the survey showed:
New research from DNV GL has revealed that cost management has become an even higher priority for senior oil and gas professionals in the year ahead, as 73% prepare their company for a sustained period of low oil prices.
The top three measures prioritized to impose stricter cost control are:
- Tougher decisions on capex
- Headcount reductions and
- Increasing pressure on the supply chain.
In theory, the drop in capital expenditures means an eventual drop in production as the search for new deposits and enhancement of current deposit production undermine supply. Higher oil prices, well into the future, may be the result.
However, for the time being, the report found that:
Indeed, 73% of survey respondents said that they were preparing their company for a sustained period of low oil prices, and more than four in ten (42%) believed that oil prices would not increase in 2016.
In other words, prices below $30 a barrel will continue. And the reaction:
Our survey shows that cost-efficiency initiatives will continue well into 2016. Nearly nine out of ten respondents (88%) said that cost reduction would be top, or a high priority, for them in 2016. This is up from 85% last year. Shareholder pressure is increasing the urgency of cuts: 93% of publicly-listed companies said that reducing costs would be top or high priority for them this year, compared to 85% of privately-held companies and 77% of state-owned companies.
Oil giants Schlumberger Ltd. (NYSE: SLB) and Exxon Mobil Corp. (NYSE: XOM) already have cut staff. Smaller oil producers, particularly those that count on share, have begun a string of bankruptcies. Layoffs are bound to worsen.
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