Crude price plummets further on supply
Oil industry moves to cut 6,400 jobs amid global glut
Oil and gas companies announced plans to cut more than 6,400 jobs on a grim day for the industry that saw the price of crude oil settle below $20 for the first time since 2001 and the amount of petroleum in U.S. storage rise by nearly 20 million barrels.
The most job losses came at Weatherford International, the Houston-based oilfield service company, which said Wednesday that it plans to cut 25 percent of its global workforce. A breakdown of where the layoffs will take place was not immediately available but the company had said it employed about 24,000 workers at the beginning of the year — meaning it will shed 6,000 jobs.
But as demand collapses during coronavirus-related shutdown orders and the recent global price war sent stockpiles soaring, Weath
erford isn’t alone. Houston oilfield service companies Baker Hughes and Halliburton also said they were laying off almost a combined 400 employees at three locations in Oklahoma and Colorado this week.
Reid Morrison, an energy industry expert with the Houston office of the international consulting firm PwC, said the pandemic came at a moment of vulnerability for the industry. Crude oil in the U.S. spent almost a year near $55 per barrel, the price needed by many U.S. shale drillers to break even. Then a price war between Russia and Saudi Arabia sent the price tumbling below $30 in March.
With the industry still unable to resolve the global supply glut, West Texas Intermediate crude oil closed trading at $19.87 per barrel Wednesday.
“COVID-19 and oil price volatility have amped up the pressure facing the oil and gas industry, and there will be a time and place to reflect on lessons learned,” Morrison said. “For the immediate future and next 12 to 18 months, it is time for the industry to replace hoping for higher prices with resetting their strategies and cost structures based on the low cycle, which means shrinking.”
Baker Hughes on Wednesday attributed 234 layoffs in Oklahoma City to the combined effects of the coronavirus pandemic and the crash of crude oil prices, which have cut demand for the company’s services.
The company said Monday it would cut capital spending by more than 20 percent from 2019 levels and plans to write down the value of $15 billion of assets as part of its first-quarter earnings.
“Baker Hughes is responding as rapidly as possible to these conditions,” the company’s human resource chief Holly Page wrote in a letter announcing the layoffs. “In order to meet these rapidly changing unforeseeable business conditions, we are making the difficult business decision to reduce our staffing levels for some locations in the U.S.”
Halliburton laid off 33 employees in Pocasset, Okla., on Wednesday and other 130 employees in Fort Lupton, Colo., on Monday. The company has laid off an another 1,800 employees in Oklahoma, Colorado, New Mexico, North Dakota and Wyoming since October.
On top of placing 3,500 employees at its Houston headquarters on furloughs through May, Halliburton also cut salaries for executives and canceled an endof-year contribution to employee retirement plans.
“This was a painful decision and I am fully aware of the difficulty this will cause our impacted employees,” Halliburton CEO Jeff Miller said in an email. “Unfortunately, this action is necessary as Halliburton adjusts to the market.”
Meanwhile, oil storage tanks in the United States are nearly 65 percent full because of falling demand for crude and its derivatives attributed to much of the globe remaining house-bound to prevent spread of the coronavirus.
After an increase of 19.2 million barrels last week, there are 503.6 million barrels of crude in commercial tanks across the U.S., 6 percent above the seasonal average, the Energy Information Administration said Wednesday. The U.S. has an estimated capacity of 768.8 million barrels at refineries and commercial tank farms.
U.S. demand is about 6.4 million barrels per day, 31.6 percent less than at the same time last year, the EIA said. Jet fuel demand is down by 39.7 percent and diesel demand is down by 8 percent, the agency said.
As result, U.S. refineries are processing an average of 12.7 million barrels of oil per day, 69 percent of their combined capability, according to EIA data.
The situation prompted Houston-based Plains All American Pipeline last month to ask its customers to reduce production to prevent storage tanks from filling up.
Commercial oil storage in the U.S. could reach its limit by midMay if demand continues to fall, Plains President and Chief Commercial Officer Harry Pefanis told the Railroad Commission of Texas during Tuesday’s hearing on proposed state-mandated cuts to oil production.
Jim Teague, co-CEO of Houston pipeline operator Enterprise Products Partners, told the Railroad Commission that his company has been converting some natural gas liquids storage tanks to hold gasoline and diesel. The company has offered to do so for crude oil, but it hasn’t had any takers.
“I’ve never seen a situation where storage fills up,” Teague said. “The market adjusts for that. At a certain point and at a certain price, somebody’s going to buy that crude oil.”