LONDON — As oil prices continued to fall, the British oil giant BP said on
Wednesday that it would cut jobs and take $1 billion in restructuring
charges over the next five quarters.
The company said it did not yet know how many people would be let go, but
said that most of the money would go to severance packages. With the amount
of money earmarked, that could mean thousands of job cuts. BP had 84,000
employees worldwide at the end of last year.
The price of the international bench mark, Brent crude, was down more than 1
.5 percent on Wednesday to about $65.32. It is now down more than 40 percent
The cartel of oil-producing nations, OPEC, on Wednesday added to the
downdraft in prices with its monthly oil market report for December. The
organization forecast that demand for its members’ crude would be only 28.9
million barrels per day next year, well below the 30 million barrel per day
ceiling it recently decided to hold steady.
Analysts agree that a hefty production trim of at least 1 million barrels a
day is needed to head off an expected surge in inventories in the first half
of next year. But so far, Saudi Arabia, which would be the main candidate
in OPEC to trim output, shows little sign of being willing to do so.
That leaves big oil companies with the task of doing their own trimming.
Besides BP, other oil giants have announced cutbacks in light of the price
decline, including ConocoPhillips, which on Monday said it would cut
investment spending next year by 20 percent. Analysts expect other companies
to join the trend.
BP is reducing its work force not only to adjust to what its executives say
may be a prolonged period of low oil prices but also to reflect the much
smaller size of the company after selling $43 billion in assets in the wake
of the Gulf of Mexico spill in 2010. BP says it has sold about 50 percent of
its installations, like production platforms, and so needs substantially
fewer people to operate them.
The company was already examining ways of reducing jobs. But the roughly 40
percent drop in oil prices since June “has increased our focus on these
activities,” said David Nicholas, a BP spokesman. Mr. Nicholas said the job
reductions were underway and would continue through next year, in all parts
of its business.
In a sense, the Gulf of Mexico disaster put BP ahead of the industry’s cost
-cutting curve. The company was forced to sell oil and gas fields in the
United States, the North Sea and elsewhere, reducing its production from
about 3 million barrels per day before the blowout to a little over 2
million barrels per day — not counting the output it derives from its
nearly 20 percent holding in Russia’s state-controlled oil company, Rosneft.
As a result, BP has been able to a greater degree than some of its rivals to
hold down spending, although perhaps not as much as it may need to in the
Lamar McKay, the company’s head of exploration and production, said in a
presentation to analysts on Wednesday that, historically, up to two years
were required for prices to recover from steep declines.
“OPEC’s recent decision not to cut production has also left the market
more vulnerable,” to the forces of supply and demand, Mr. McKay said.
Mr. McKay said that BP was likely to cut back on its capital expenditures.
In March, the company said the spending would be in the range of $24 billion
to $26 billion per year through 2018. But that estimate might be cut by up
to $2 billion or more in 2015. And Mr. McKay said that “given the recent
position taken by OPEC and with oil prices where they are today” the
company would “review this further.”
Analysts say that other companies are likely to follow BP’s cost-cutting
example. Oil companies including Royal Dutch Shell and Total had already
been reining in spending on their projects and selling off properties in
response to investor complaints about soaring costs and diminishing returns.
During several years of stable and relatively high prices, costs for
everything from labor to drilling rigs to specialized steel had surged. BP,
for instance, said on Wednesday that its costs for producing a barrel had
risen more than fourfold in the last decade, to about $13 per barrel. Taxes
on production have also risen sharply.
The squeeze is only just beginning, analysts say. “There will be even more
pressure on the financials of the main operators,” Martijn Rats, an analyst
at Morgan Stanley in London, said in an interview.
Mr. Rats said in a recent note to clients that he expected the major oil
companies to try to save billions of dollars through delaying projects,
reducing drilling and other spending on exploration, and twisting the arms
of the oil service companies, like Schlumberger and Halliburton, which do
much of the work in oil fields today, to lower their prices.
In a presentation to investors earlier this month, Patrick Schorn, president
for operations at Schlumberger, the largest provider of services like
fracking and seismic surveying, said that lower oil prices had triggered “a
very strong focus from our customers on short-term cost cutting.”
Mr. Schorn said that the squeeze was hitting exploration hard and that the
company was reducing by about a third the fleet of boats it used for making
surveys of undersea oil deposits, leading to an estimated $800 million write
-off. Mr. Schorn also said that Schlumberger would be reducing its work
force, a move that would lead to about $200 million in further charges this