Exxon, Chevron to lay off 2K workers amid downturn

Houston, the nation’s energy capital, was again stung by layoffs as two of the largest U.S. oil companies said they would cut nearly 2,000 workers in a sign that the economic fallout from the coronavirus pandemic is far from over.

Irving-based Exxon Mobil plans to cut 1,900 U.S. employees to bolster its bottom line during the pandemic, and Chevron said it will cut some 500 Noble Energy workers absorbed during an acquisition greased by the downturn. The job cuts are a blowto a region that has already lost tens of thousands of energy jobs amid the pandemic.

The layoffs announced Thursday at Exxon, the nation’s largest oil company, follow its review of operations that may result in up to 15 percent of its global workforce being cut. Exxon employs 88,300 workers and contractors worldwide, including 12,000 in the Houston area.

“These actions will improve the company’s long-term cost competitiveness and ensure the company manages through the current unprecedented market conditions,” Exxon said in a statement. “The impact of COVID-19 on the demand for ExxonMobil’s products has increased the urgency of the ongoing efficiency work.”

Exxon and Chevron’s layoffs reflect the economic devastation wrought by the global pandemic, which crushed crude demand and prices and forced oil companies to slash budgets, halt drilling and cut dividends. Exxon, which has prided itself for weathering downturns without cutting jobs — including during the previous downturn in 2014-16 — deferred more than $10 billion of capital spending, slashed15 percent of its operating expenses and cut contractors starting in March to weather the economic downturn.

Those cost-cutting measures were not enough to prevent layoffs, and more reductions will be necessary, Exxon CEO Darren Woods told employees during a town hall meeting at its Spring campus last week. It was a stunning admission by Exxon, the world’s most valuable company just seven years ago.

“Exxon historically has been a very disciplined company,” said Ed Hirs, an energy fellow and economics professor at the University of Houston. “They don’t take layoffs lightly.”

Since crude prices collapsed, Exxon’s market value has plunged by more than 66 percent to $137 billion from a high of $418 billion in 2013. The oil giant was recently removed from the Dow Jones Industrial Average, a group of 30 key stocks that serves as a benchmark for the U.S. stockmarket. Exxon’s exit left Chevron as the only energy stock on the Dow.

A global process

Even if oil prices recover from the pandemic, Exxon faces the prospect of declining fossil fuel demand in the coming decades as countries and corporations act to mitigate climate change.

Exxon began reducing its workforce in March, starting with oil field services contractors.

In July, Exxon announced a country-by-country review that it said may identify efficiencies, including the reduction of management positions. Exxon has completed reviews in Europe and Australia, where there were voluntary and involuntary layoffs. In the U.S., Exxon made its employee performance review metrics more stringent this year, though it said it wasn’t aimed at cutting workers.

Exxon did not disclose when its U.S. layoffs would begin but said they will take place primarily at its management offices in the Houston area. Affected employees will be given severance and outplacement services.

Most of Exxon’s rivals already announced mass layoffs in response to the oil bust. Chevron in May said it would lay off 6,000 workers by the end of the year, and BP followed in June with 10,000 planned job cuts by the end of the year. Shell last month said it plans to cut as many has 9,000 workers by the end of 2022.

Since the pandemic took hold in the U.S. in March, oil and gas companies have laid off 47,300 drilling-related workers in Texas, including 12,500 in the Houston region, according to the Texas Alliance of Energy Producers.

Mergers and cuts

While it appears that job losses stemming from the pandemic are slowing this fall, more could be coming as the industry consolidates through mergers and acquisitions while cutting redundant positions. Companies are more apt to consolidate during a downturn as stock prices fall and weaker companies look to join forces with stronger ones.

California oil giant Chevron acquired Houston-based Noble Energy this month and will layoff about 25 percent of onetime Noble workers this month. Notifications went out this week to employees, informing them whether they will stay on with Chevron after the $9.7 billion acquisition.

Chevron did not disclose the number of employees being let go, but 25 percent of Noble’s 2,280 workers in 2019 would be about 570.

“We expect Chevron’s new organizational design to retain approximately 75 percent of Noble’s positions,” Chevron spokeswoman Veronica Flores-Paniagua said in an email. “The number will vary in each business segment and function.”

Similar job cuts could follow pending deals including ConocoPhillips’ $9.7 billion bid for Concho Resources, Pioneer Natural Resources’ $4.5 billion pursuit of Parsley Energy and Devon Energy’s $2.6 billion bid for WPX Energy.

Despite laying off thousands of workers, Exxon will continue to pay the third-highest dividend among companies in the S&P 500 Index, underscoring its historic commitment to the payout even during the ongoing oil bust.

Although Exxon did not raise its dividend for the first time in years , investors will receive 87 cents a share for the current quarter, matching the payout in each of the last six periods, Exxon said in a statement this week. Among S&P 500 companies, only Microsoft and AT&T have paid more in dividends over the past 12 months, according to Bloomberg data.

Hirs, the UH economics professor, said Exxon has been under tremendous pressure from investors to improve its earnings as the energy sector has become the worst-performing sector of the stock market. As a result, Exxon had to prioritize dividends, he said.

“Exxon is run for the benefit of its shareholders, not for the benefit of the employee,” Hirs said. “That’s our corporate model.”

Exxon shares on Thursday rose by 4.4 percent to $32.97 on Thursday; Chevron’s increased by 3 percent to $68.80.

This report contains material from Bloomberg News.