Rather than cut production in the face of the oil price slump, BP instead will eliminate 1,000 or more jobs in both its oil and gas businesses by the end of 2015.
The restructuring program, announced Dec. 10, will cost the British energy giant an estimated $1 billion in addition to the budget cuts amounting to as much as $2 billion announced in October. In a statement, BP said the restructuring charges would begin in the current quarter and last through the fourth quarter of 2015, and that it would announce details of the restructuring in the coming months.
In the statement, the company’s CEO, Bob Dudley, said BP already has made more than $43 billion in divestments in an effort to “right-size our organization” and make it “even stronger and more competitive.”
The drop in oil prices aside, the $43 billion divestment was actually designed to pay for the damages resulting from the disastrous 2010 spill in the Gulf of Mexico as well as covering rising production costs.
“The simplification work we have already done is serving us well as we face the tougher external environment,” Dudley said. “We continue to seek opportunities to eliminate duplication and stop unnecessary activity that is not fully aligned with the group’s strategy.”
And during an investor-day presentation in London, Lamar McKay, BP’s head of exploration and production, said more announcements may be forthcoming because of OPEC’s refusal to cut production and thereby shore up oil prices. “Given the recent position taken by OPEC and with prices where they are today, we will continue to review this further,” he said.
A BP spokesman added that the restructuring announced so far will involve more than McKay’s jurisdiction, but will involve eliminating staff redundancies in all sectors of the business, including administration, refining and trading.
BP’s work force totals about 84,000 employees. The number of workers expected to be laid off varies from source to source. Reuters quotes sources as saying “thousands” will lose their jobs; the Financial Times refers to “several thousand” job losses; and The Independent limits that number to about 1,000.
Because of a global oil glut, crude prices have plummeted from an average of about $115 per barrel to about $65 per barrel since mid-June, making oil an increasingly less profitable commodity. Prices got no help when OPEC, led by Saudi Arabia, decided Nov. 27 not to lower its production cap of 30 million barrels per day.
The glut is fed in part because of less demand for oil in both China and Europe, and by a boom in US shale oil extraction, which is more expensive than conventional harvesting. Iranian Oil Minister Bijan Namdar Zanageh said the reason OPEC didn’t cut production was to drive prices low enough to make shale extraction unprofitable and thus restore OPEC’s American market share.
By Andy Tully of Oilprice.com
More Top Reads From Oilprice.com:
Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com