The head of Australian-listed energy producer Oil Search said the axing of one in three workers was a painful but necessary decision in order to ride out a prolonged period of devastation facing the global oil and gas industry.
Oil Search on Wednesday said it would reduce its total workforce by more than 550 full-time jobs – cutting employee numbers from 1649 to 1222 immediately with a further 137 positions to be culled by December.
Oil Search managing director Keiran Wulff said the job cuts would be “extremely challenging” and made more difficult by the pandemic. He said Oil Search was committed to treating its outgoing employees with care and respect, providing termination payments and help for them to reskill.
“Major workforce reorganisations are always extremely challenging,” he said. “This process has been made even more difficult given the current circumstances of COVID-19. We will emerge from the recent challenges more resilient while retaining all the capabilities required to operate our production assets safely and efficiently, with a strong platform for progressing our growth projects when conditions allow.”
The cuts come amid growing expectations the recent slide in the oil price will not be temporary. One of the world’s largest oil and gas companies, Royal Dutch Shell, announced a writedown of up to $US22 billion ($31.9 billion) on the value of its assets overnight following a similar move by BP
“It’s no surprise to see Shell writing down the value of its assets, in line with the new post-pandemic energy demand outlook,” Wood Mackenzie senior analyst Daniel Toleman said. “In fact, we’ve revised the value of oil and gas assets in Asia Pacific by US$200 billion as a result of a lower oil price outlook.”
In Australia, top ASX-listed energy producers are hunkering down and are bracing for further pain to come when the extent of oil price falls flow through to their sales of LNG. Oil Search, Santos and Woodside have wiped billions of dollars from their budgets this year in the hope of riding out the downturn inflicted by travel restrictions sapping fuel demand and gutting prices of crude oil and LNG, one of Australia’s most valuable exports.
Oil Search has slashed its expected investment spending by $675 million, suspending all non-essential projects and activities in Papua New Guinea and deferring exploration work it had planned. In Alaska, work to begin early oil production at its Pikka project was put on hold and the company suspended formal talks to sell off a 15 per cent stake in its Alaskan assets.
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The restructure announced on Wednesday was the result of an extensive review of Oil Search’s organisation and cost structure, Dr Wulff said, and would ensure Oil Search had the resilience, capability and financial strength needed to withstand a “prolonged period of subdued oil prices”.
“We have reviewed how to make our company stronger by prioritising activities and focusing on the capabilities that are required for us to be successful under a range of economic conditions,” he said on Wednesday.
“The work undertaken has been assessed against an independent domestic and international industry organisational benchmarking study to ensure Oil Search’s new cost structures are competitive with global energy industry peers.”
Following the job cuts, Oil Search said its female workforce representation would increase, with women representing more than 28 per cent, up from 25 per cent previously.
After BP in mid-June cut its benchmark oil price assumptions from $US70 to $US55 a barrel, analysts and investors are questioning whether price forecasts issued by Australian energy companies need to be revised as well. Industry sources said local companies were in the process of reviewing prices and the value of assets ahead of investor updates.
Lower oil and gas prices could have severe implications for Australia’s $50 billion-a-year liquefied LNG export sector and imperil the viability of billions of dollars of projects awaiting final decisions off the coast of Australia due to lower-than-expected rates of return.
Extracted from The Sydney Morning Herald