Oil Industry Strives to Limit Its Layoffs

NEW YORK (Dow Jones Newswires), March 9, 2009

As oil companies cut costs amid slumping energy prices, they are determined not to repeat the mistakes of the 1980s oil bust, when mass layoffs left the industry ill-prepared for the eventual rebound.

The lack of a clear consensus on how long the slump will last has presented the industry with a difficult choice. Companies can lay off workers and risk being understaffed if prices recover quickly, or bear the cost of employing more workers than needed during what could be a prolonged period of slow activity and lower revenues. A few of the largest oil companies, such as Exxon Mobil Corp. and Chevron Corp., have large cash reserves after years of high oil prices, but most smaller companies spent heavily during the boom years and are now scrambling to cut back.

Some companies have announced layoffs. Houston-based oil major ConocoPhillips last week began laying off more than 1,000 employees in Alaska and elsewhere. Schlumberger Ltd., the world's largest oilfield-services company by revenue and market value, is laying off about 5,000 employees world-wide, about 6% of its work force, while Halliburton Co. is cutting an unspecified number of jobs.

But so far companies have avoided the mass layoffs seen in the 1980s, when a glut of oil drove prices below $12 a barrel and tens of thousands of workers lost their jobs. They are especially keen to hang on to engineers and geologists, who were in short supply during the boom years.

Exxon Mobil and Chevron continue to move mammoth projects forward. "What you're hearing is caution, and some effort to be optimistic," said Diana Hoover, an employment lawyer with Houston-based law firm Mayer Brown, who has oil-industry clients.

The 1980s energy bust decimated the industry's work force, leaving companies without the experience and expertise they needed when prices rose and work picked up again.

Most of the layoff victims left the business for good, while the industry's boom-bust reputation scared away potential recruits. The result: a "lost generation" of oil workers whose absence has been felt well into the 21st century.

"It really came back to bite them," said Abby Foster, a human-resources consultant with Deloitte Consulting.

Industry executives say they have learned their lesson. Lawrence Pope, executive vice president for administration at Halliburton, said when recruitment and retraining costs are taken into account, layoffs can actually prove more costly than retaining workers.

"Our driving focus here will be to work hard to try to minimize the personnel reductions, as opposed to past practice when that was almost the first thing we did," he said.

Schlumberger Chief Executive Andrew Gould said his company is willing to make sacrifices in order to hold on to valued workers. "We're happy to lower prices, but we want to keep our people busy because we don't want to lose them," Mr. Gould said.

Ms. Hoover, the employment lawyer, said some companies are still quietly making cuts. "The vast majority [of energy companies] are going through restructurings even though they may not be as public about them," she said.

Companies see the slowdown as an opportunity to cut low-performing workers, Alex Preston, president of The Energists, a Houston headhunting firm, said.

But companies said they are reluctant to stop hiring altogether. Mr. Gould said Schlumberger is working to maintain its contacts on university campuses even as it hires fewer graduates.

"You talk to faculty all the way through the downturn. They understand economics, but what they hate is when you come to campus, you do a big song and dance, you hire a bunch of people and then you disappear for five years," Mr. Gould said.

John Richels, president of Devon Energy Corp., said the company is maintaining the internship program it developed to recruit new engineers and geologists.
 

Copyright (c) 2009 Dow Jones & Company, Inc.

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