OXY Occidental Petroleum Corporation

By Chester Dawson And Benoît Faucon 

As layoffs become the energy industry's main response to low oil prices, a handful of producers are aiming to trim personnel costs without pink slips by spreading the pain among their employees.

Companies including Occidental Petroleum Corp. and Canadian Natural Resources Ltd. are employing hiring freezes, caps on bonuses, and even across-the-board wage cuts to preserve jobs. They and others that already have reduced payrolls--including many drilling and well servicing firms--are reluctant to slash further, say energy-industry experts.

In part, they're trying to avoid the type of skilled worker shortages that followed mass job cuts in prior downturns. But it's also because their businesses can't succeed without sufficient staff, especially if the downturn in oil prices reverses course.

"There's no more fat to be cut," said Deborah Byers, a partner at consultants Ernst & Young in charge of its U.S. oil and gas practice.

More than a year after oil prices began their descent to under $50 a barrel from over $100, the number of energy-company layoffs world-wide has topped 200,000, says Graves & Co., a Houston consulting firm. More cuts are expected because crude shows little sign of rebounding soon.

Occidental Petroleum has avoided mass layoffs so far. The Houston-based company told its employees last month it will cap bonus payments this year and freeze salaries into early 2016, according to an email reviewed by The Wall Street Journal.

Noting that annual cash flow drops by $120 million for every $1 decline in the price of oil, Chief Executive Steve Chazen warned in the email that bonuses "may be further reduced or eliminated" and some jobs could still be cut if oil prices don't bounce back. In the latest quarter, the company's cash flow was $1.5 billion, down from $2.1 billion a year earlier. Spokeswoman Melissa Schoeb confirmed the action and said Occidental is "taking aggressive action to ensure the company's long-term success."

The last time Occidental disclosed large staff layoffs was in 1998, when it shed hundreds of jobs and cut its head-office workforce by half. That was during another period of mass layoffs in the oil industry stemming from low crude prices and consolidation.

Those cutbacks led to a dwindling number of petroleum engineers followed by what some described as a "lost generation" that left the energy industry exposed to shortages of high-skilled professionals a decade later.

"Everybody that went through this before all knows it really hurt oil companies in terms of not having a generation ready to move into management positions," said Dan Hill, who heads Texas A&M University's petroleum engineering department. As students graduate, "We're encouraging companies to hire them as technicians for half of what they'd earn as petroleum engineers," he said.

Average annual pay for petroleum engineers hit $147,520 at the height of the boom in mid-2014, or more than three times the level of the average U.S. worker, according to the federal Bureau of Labor Statistics. That helped draw in more people; according to the agency, the number of petroleum engineers swelled to 33,740, three times the number back in 1998.

Continental Resources Inc., a major shale-oil producer, has vowed not to use the crude-price slump as an excuse to lay off any of its roughly 11,000 employees and says it has no plans to cut their pay. But the Oklahoma City-based company has embarked on a belt-tightening campaign.

"If there were free peanuts in the break room before, chances are they won't be there now," said Kristin Thomas, a company spokeswoman.

Louise Wilson, a Calgary-based partner in Deloitte's Human Capital practice, said that "the undercurrent here--and companies are very careful how they talk about this--is chipping away at the entitlement mentality that has developed over time within the industry."

Canadian Natural Resources, one of Canada's biggest oil and gas producers with 7,600 employees, also has ruled out job cuts in favor of pay cuts. In an email to staff reviewed by The Wall Street Journal, President Steve Laut promised "not to undertake employee reductions due to current low commodity prices (i.e., no layoffs)."

But the company said it would cut wages for all salaried employees in tiers, trimming pay above 50,000 Canadian dollars ($37,000) a year by 5% and any pay above C$100,000 by 10%.

"Graduated salary reductions are the preferred way to reduce costs, as it allows everyone on the team to stay together, and more important, work together, to focus on creating value in these challenging times," Mr. Laut wrote.

Write to Chester Dawson at chester.dawson@wsj.com and Benoit Faucon at benoit.faucon@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

October 12, 2015 19:15 ET (23:15 GMT)

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