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Summary
A number of major oil and gas companies have announced significant workforce reductions over the last few weeks.24/7 Wall St. contributors Douglas A. McIntyre and Lee Jackson break down what this could mean to the stocks of those companies as well as others.
Transcript
[00:00:03] Doug McIntyre: So, Lee, we’re starting to see mergers, more mergers now in the oil fields.
[00:06:02] Lee Jackson: Yeah, we are.
[00:07:11] Doug McIntyre: You know, the consolidation happens for a simple reason. I know these companies are a little bit different from each other. Upstream, downstream, production, exploration. But listen, basically. They’re all brothers and sisters, or first cousins of one another’s. So the fact that you’re getting roll-ups in industries where you’ve got related companies, isn’t that surprising. What’s, what’s going on there in the last few months?
[00:42:02] Lee Jackson: Well. Nothing the size of like when, when Mobil was purchased by Exxon and merged in but Conoco recently announced, and this is Conoco Phillips, the simple COP they recently announced that they were going to lay off, uh, astonishing 20 to 25% of their workforce, which translates to a, you know, a fair amount of jobs. And I, lemme check my data on that, but I think it translated to. Let’s look real quick. Okay. That translates to about 3,200 people, which is a, a pretty big layoff. And, you know, they recently purchased a marathon. Simple MRO, so they did it. And that’s probably one of the reasons for these ’cause you’re, you’re getting rid of duplicated positions, but yeah. But I mean, 20 to 25% of your workforce is a big, big hit. And the, you know, the tech guys have been quietly laying off people for the last three years. Big chunks of people. And so the question has to be, especially with the job market where there’s now, it had been out of balance to the good side, but now there’s more people unemployed than jobs out there posted jobs. So that used to be the other way around. You know, there was more jobs than people to, to fill ’em. So I think what this is quietly telling us is that the economy’s in for some trouble now, whether it’s gonna be anytime soon or next year, but I think we’re in trouble. And I think a lot of the indicators that market mavens look at like Mike Hartnett, I just wrote an article on this recently. You know, he says, Hey, you know, this is about as overbought as it can be. So where do you go next?
[02:33:23] Doug McIntyre: Yeah. I have a rule of thumb, and that is, is that if you see a merger between two companies that are basically very, very closely related, you can figure between 10 and 20% of the people will be laid off, that will help increase earnings. Now, boards of directors are often stupid. Which means that the merger is sometimes the fundamental merger doesn’t make any sense, right? No, but my rule of thumb as an investor is if I see two companies that are similar to each other that are merged. Take that workforce and give it a major haircut in terms of what happens to the expense side of earnings. I think it’s, I think it’s a good rule to live by.
[03:15:17] Lee Jackson: It is a very good rule to live by, and it’s always proven to be correct. I mean another huge energy deal that is finally gonna close after two years plus of wrangling will be Chevron’s purchase of Hess. Of Hess. For, for people that don’t live on the east coast, Hess is a much bigger player on the east coast of the United States. But this is a, a very similar merger of equals and you know, but Hess also like, like Marathon has a big energy services side and, and it’ll be interesting to see if they, and Hess owns part of it and other people, but that’s another positive thing for Chevron to add into their huge web of, of products that are offered. So yeah, it’s gonna be interesting to see if there’ll be more. ’cause these are big, big, big deals.
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