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January 21, 2016

Shell Fires Another 10,000 While Energy Layoffs Top 250,000

Shell Fires Another 10,000 

As reflective of trends in the industry Shell Fires 10,000 Workers
As its fortunes collapse due to falling oil prices, Royal Dutch Shell PLC will fire 10,000 people in an effort to bolster margins.   

Operating costs have reduced by $4 billion, or around 10% in 2015, and the company expects Shell’s costs to fall again in 2016 by a further $3 billion. Synergies from the BG combination will be in addition to that. Together, these actions will include a reduction of some 10,000 staff and direct contractor positions in 2015-16 across both companies, as streamlining and integration of the two companies continue.
Did Shell Overpay for BG?

The "BG combination" mention above but not explained (emphasis mine) refers to the Shell Takeover of BG announced in December.  
Royal Dutch Shell is pressing ahead with its $60bn (£40bn) takeover of BG Group despite doubts among some shareholders about the deal’s viability given the falling oil price.

Some Shell shareholders believe the company is paying over the odds for BG because the deal was agreed in April on the assumption that oil prices would recover to $90 a barrel by 2020. The price of oil has slumped from $115 a barrel in summer 2014 to less than $40. On Monday it dropped to an 11-year low of $36.17.

David Cumming, head of equities at Standard Life Investments, said last week the deal does not make sense with the oil price so low. He called on Shell’s boss, Ben van Beurden, to pay a $750m break fee to scrap the deal or renegotiate the terms. The only other option is for shareholders to vote against the takeover, he said.
Merger Rule Number One

Management is never fired for questionable, even outright bad, corporate decisions. Employees, not management takes the hit. In this case, chalk up another 10,000 employee synergies. 

Stock & ETF Trading Signals

Energy Layoffs Pile Up
In Search of Jobs 

On November 23, Houston Public Media reported Oil Workers Brace For Fresh Layoffs, As Industry Wrestles With ‘Lower For Longer’ Crude Prices
“We’re seeing declines in population across these towns in south Texas,” says Ed Hirs, an energy economist at the University of Houston.

For nearly eight years, high-paying jobs grew at a blistering pace across the region, long one of the poorest in the state. Now companies are shutting down operations, and those jobs are vanishing. “And until the price returns to a level above $75, $85, $95 a barrel,” Hirs says, “we won’t see a complete reemployment of everybody who’s left.”

So people are leaving — not just south Texas, but the industry — in search of work. Some will come back when the price of oil recovers. But this is an industry where roughly 70 percent of the workforce is over age 50. That’s the legacy of weak hiring during the oil bust of the 1980s and 1990s.

“I think this is going to be an acute problem in a couple of years’ time. I think it’s going to come bite us extremely hard,” says Tobias Read, CEO of Swift Worldwide Resources, an energy recruiting firm based in Houston.

Two years ago, the energy sector’s big concern was a shortage of skilled workers. Companies were scrambling to train up a new generation of engineers and geologists, pipefitters and project managers, to replace those they were about to lose.

“They’ve spent a lot of time retaining, recruiting, and training talent,” says Chad Hesters, who runs the Houston office of recruiting firm Korn Ferry. “They don’t want to see that talent leave. It’s incredibly expensive to have people you’ve spent years training walk out the door.”
Global Oil Layoffs Top 250,000

On November 20, Bloomberg noted Oil Jobs Cuts Top 250,000
The number of jobs gutted from oil and gas companies around the world has now passed the 250,000 mark, with still more to come, according to industry consultant Graves & Co.

"I was surprised it’s gotten this far," John Graves, whose Houston firm assists in oil and gas deals with audits and due diligence, said Friday in a phone interview.

The industry has idled more than 1,000 rigs and slashed more than $100 billion in spending this year to cope with oil prices that have fallen by more than half since 2014. Oil services, drilling and supply companies are bearing the brunt of the downturn, having accounted for 79 percent of the layoffs, according to Graves.
The winner of the blue ribbon award for accurate prediction in the month of November goes to Graves for his understatement "It’s going to get worse before it gets better.

56,000 Layoffs in Texas Alone

On November 12, FuelFix reported Oil crash job losses in Texas may be steeper than previously thought
The number of oil and gas job losses in Texas may be far worse than an industry group originally predicted, potentially reaching 56,000, according to the latest analysis by the Texas Alliance of Energy Producers.

When crude prices started collapsing late last year, Karr Ingham, a petroleum economist for the alliance, initially forecast that the state could lose 40,000 to 50,000 upstream oil and gas jobs during the downturn, but the fresh plunge in oil prices over the summer forced additional round of layoffs across Texas.

“We now appear to be well beyond that estimate and the end is not in sight,” Ingham said in a statement Thursday.
That 56,000 estimate was from early November. What is it now?

Unambiguously Good

The price of US and Brent crude both broke $28 to the downside today but remain hovering near that level.

Don't fret. I have it on good authority this decline in oil prices is "Unambiguously Good" for the economy. 

In a CNBC video in November of 2014, Kudlow stated Drop in Oil Prices is Unambiguously Good.

Courtesy Mish's Global Economic Trend Analysis (EconMatters author archive here)

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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