For many senior oil and gas workers, many working from home due to the coronavirus pandemic, every new email from a superior, every call from the office, triggers an anxious concern – is it today they are letting me go?
Once the most attractive and lucrative places to work, the oil sector is losing its shine. Conversations with some senior oil and gas workers show that the prospect of job security in the sector is fast morphing into an illusion as oil companies try to ride out of the storm stirred by a rampaging pathogen.
“In some departments, especially senior staff members who have handled big-ticket projects, disengagements are rife,” said one senior manager who asked not to be identified due to confidentiality concerns.
While these oil companies employ only a few (Shell Nigeria’s total workforce is 3,000), they provide indirect jobs and their activities have a serious impact on the economy. The NLNG, for example, represents at least 4 percent of Nigeria’s GDP. However, keeping jobs in these oil companies is proving difficult.
According to BusinessDay findings, ExxonMobil, Chevron, Shell Nigeria, and ENI have been quietly laying off senior staff members, some with severely depleted severance packages. Staff pay and work conditions are also being renegotiated. Staff members in local oil companies are not spared either.
Read also: Oil trading giants Vitol, Matrix to hand Nigeria $1.5bn in advance payment for its oil
The oil and gas industry has been in a state of flux since this year due to COVID-19, a bruising oil price war by Russia and Saudi Arabia, and the threat of shale producers. Oil prices have dropped and there’s uncertainty on whether they’ll recover to around US$50/bbl they started the year. Oil benchmark, Brent crude, traded $41 Wednesday morning.
“When it comes to moving forward, some companies are thinking of growth while others still have work ahead to adapt to the new reality. All are considering their next investments, and how they can remain profitable in the current state of the industry,” said analysts at Wood Mackenzie.
This situation is worsened by a decline in investments in the sector. Global upstream spending was forecast to reach $383 billion this year, the lowest level in 15 years, and a staggering 29 percent decrease of $156 billion compared to 2019, according to Rystad Energy analysis of the industry’s first-quarter results.
This no longer looks realistic with the rash of capital expenditure cuts by oil majors and deferment of final investment decisions.
Personnel costs in oil and gas companies represent up to 50 percent of total expenditure but current reality does not make this sustainable. Cost-cutting is one of the thorny issues in Nigeria’s oil and gas sector as many producers are drilling at costs higher than their peers.
“Companies spend more than 50 percent to pay for human resources, this is not sustainable and anyone that cannot be efficient will be irrelevant,” said Mele Kyari, group managing director of the Nigerian National Petroleum Corporation (NNPC), in a recent webinar organised by Future Energy Leaders, World Energy Council.
The NNPC boss said oil companies including the NNPC will need to evolve a realistic HR process, better adoption of technology as well as reducing logistics costs.
Elaborating on what constitutes the personnel costs he wants reviewed, Kyari said that many companies were piling on staff costs beyond basic allowance to include huge disengagements cost, bonuses, regular raises, among others that drive personnel cost above 36 percent of cash flow rather than the industry average of 11 percent.
Besides personnel, the next huge costs is logistics, the sector operators say. According to Kyari, logistics cost within Nigeria is about $7 a barrel while to China attracts as little as $2, a development that increases production costs.
Oil and gas companies are now aggressively implementing cost-cutting measures and gutting their workforce appears to be a low hanging fruit.
They are also increasingly automating their processes, outsourcing key operations, sharing assets, embarking on creative financing schemes, and cutting capital expenditure to remain profitable.
However, these measures still face the threat of environmental factors including security and multiple, conflicting regulations which raise their operating cost.
