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Coronavirus Infects Energy Job Market: Is Relief in Sight?

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Reeling under a global health emergency, people across the world wait in anticipation to see the chain break. Concerted efforts are being made by a unified force in every sphere to eradicate the novel coronavirus pandemic from the face of the earth. However, this task seems daunting and time-consuming. In fact, no sector is left unscathed by this fast-evolving deadly virus, especially the energy space wherein the US oil and gas labor market is confronting a slew of challenges.

The Oil-Energy market was already feeling the heat from weak oil prices before the COVID-19 struck. Barely had the industry participants overcome the oil price plummet when the coronavirus outbreak hit them hard, further aggravating their woes. This lean patch forced operators to cut costs significantly by suspending some of their major activities as well as trimming workforce. While these strategic actions might improve profit levels to a certain degree, the overall sentiment surrounding the industry persists to be pessimistic.

Per a recent Rystad Energy analysis of the latest US BLS labor data, more than 100,000 oil and gas jobs are already lost with majority occurring in the support activities market. Precisely, the support activities segment has seen a staggering retrenchment of 20% employees compared with February’s pre-Covid-19 levels.

The statistics further reveals that four of the oil and gas segments are severely affected by the coronavirus-induced oil price collapse.  They are support activities for oil and gas operations (44,550 jobs slashed from a pre-Covid-19 level of 233,550), pipeline and gas, and related construction work (16,000 jobs cut from 227,000), drilling of oil and gas wells (13,450 laid off from 79,450) and oil and gas extraction (9,600 axed from 156,600).

Industry Performance

Let’s take a look at the price performance of the oil and gas field services as well as the exploration and production industry, which are the two biggest energy components. In the year-to-date period, the S&P 500 Index has plunged 1.3% compared with the oil and gas energy sector’s 37.1% slump. During this period, the Zacks oil and gas field services industry has dropped 25.7% while the Zacks oil and gas exploration and production space has tumbled a whopping 46.4%.

Oil-Energy Sector Jobs in Jeopardy

While the pandemic brought a number of small and medium-scale businesses to the brink of downfall with some already going bankrupt and certain others in deep financial trouble, biggies in the sector too are not spared of this chaos and are seen grappling with low commodity prices.

In a bid to bounce back from the drastic reduction in commodity prices resulting from the plaguing coronavirus, BP plc (BP - Free Report) recently announced that it will commence a process of condensing its global headcount. This time, the energy major decided to clip 10,000 job positions from its global workforce of roughly 70,000.

This British energy major, currently carrying a Zacks Rank #3 (Hold), added that in 2020, it will be shrinking its capacity to the maximum. However, per management, individuals working in the frontline will be protected while office-based jobs will be affected. Heads will roll over the ongoing economic turbulence, which will make more than 30% group leaders redundant.

The top authorities further added that no matter how harsh this decision sounds, it will substantially strengthen the financials. The leading integrated energy company also emphasized that it is time to reinvent BP, considering the coronavirus-hit business environment and the current financial crunch. Overall, the broader plan is to streamline the company’s operations for concentrating more on core assets and business and boost its competitive edge. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Another supermajor Chevron Corporation (CVX - Free Report) is slashing headcount by nearly 10-15%, indicating an approximatecut of 6,000 of its 45,000 non-gas station staff. This move is in line with the company’s continued portfolio rationalization to reflect its operational efficiencies and match the projected activity levels.

Per this presently Zacks Rank #2 (Buy) company’s previously-announced plans, it will also furlough nearly 300 workers in Pennsylvania where it has gas wells and will shed jobs at its giant Australian liquefied natural gas facility.

Exploration and production company Ovintiv Inc. (OVV - Free Report) recently announced laying off almost 25% of personnel, suggesting an approximate cut of 650 of its 2,600 staff in Canada and the United States. This tactical move comes within a little over a year of the company’s announcement that it will economize the cost to company by removing 470 employees and shrinking the ranks of executives by 35%.

The lay-off, which is already effective, comes as this currently Zacks #3 Ranked company braces itself for more moderation in oil demand. The company, formerly known as Encana Corporation, confirms that its total workforce will now become 2,100, comprising 1,900 employees and 200 contractors.

In April, Halliburton Company (HAL - Free Report) permanently slashed headcount by nearly 350 at its Duncan facility in Oklahoma.

Further, this #3 Ranked company lowered the income of its top brass. Apart from salary cuts, the company is planning to halt certain contributions made to employee retirement accounts.

The oil industry is battered big time due to the prevalent pandemic that pervaded most sectors until now. Fuel demand saw a massive meltdown following large-scale travel restrictions imposed globally.

Compelled by this current global economic downslide, Halliburton management announced in March that it is laying off 3,500 workers for a couple of months. At this time of crisis, the employees being retained on payroll will report to work on alternate weeks, that is, one-week on and one-week off and will only be paid for the weeks they were on duty.

This Houston-based oilfield service provider realized that in order to enhance its operating excellence despite the challenging market conditions, it has to curtail costs in heaps. The volatility in commodity price convinced explorers and producers to adopt a relatively conservative approach to capital expenditure programs.

This shift in customer policy is likely to induce subdued demand for oilfield services and equipment, putting much pressure on the pricing. So impelled by this current market unpredictability, many oilfield service players including Oceaneering International (OII - Free Report) , Schlumberger Limited (SLB - Free Report) and ProPetro Holding (PUMP - Free Report) are taking cautious measures by containing their capital spending.

The Road Ahead

The uncertainty around oil prices means that the commodity's future movement is anybody's guess. However, fundamentals imply that the odds are firmly stacked against an immediate turnaround. And if there’s any further price decline, especially below the $30-a-barrel level, it will adversely impact small-to-mid-tier entities, triggering another spate of job losses.

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