ConocoPhillips (COP), the third-largest U.S. oil company, said Friday it's cutting 4 percent of its overall work force, reducing the number of contractors it works with, cutting capital spending by 18 percent and writing off $34 billion in noncash assets because of plummeting energy prices. These are the first announced job cuts by an oil major, about 1,300 in this case. ConocoPhillips said it has approved a capital spending program of $12.5 billion for 2009, down from the $15.3 billion it projected to spend in 2008.
Just last week, Schlumberger (SLB), the world's largest oilfield services company, said it would eliminate up to 1,000 jobs in North America, or about 5 percent of its work force, and is looking at cuts elsewhere globally. Halliburton (HAL). also said it would begin laying off workers but didn't say how many or when.
"We are positioning ourselves in the current business environment to live within our means in order to maintain financial strength," ConocoPhillips Chairman and Chief Executive Jim Mulva said in the statement. "We're doing this by reducing our cost structure, addressing our balance sheet and continuing to manage the company through prudent capital discipline." Translation, "we aren't drilling anywhere near what we were before."
In November, ConocoPhillips and the state-run Saudi Arabian Oil Co. postponed construction of a multibillion-dollar refinery in Saudi Arabia because of the deteriorating global economic situation, which has eaten away at energy demand.
Oppenheimer & Co. analyst Fadel Gheit has said he expects spending cuts to average 10 percent for large producers and 30 percent for smaller companies.
Chevron (CVX) spokesman Don Campbell said Friday the company had no plans to cut its work force. Exxon Mobil (XOM) hasn't announced any work force changes either.
In addition, ConocoPhillips said it likely would replace only about 25 percent to 30 percent of its 2008 production with new reserves. Reserve replacements represent the ratio of reserves found over production for a given period. Analysts typically say a company's reserves replacement should average more than 100 percent over a three- to five-year period to indicate growth.
This is very bullish for oil prices longer term. When demand returns (you have to believe we are in a global depression for it not to) prices will spike as excess supply dries up and this shuttered production lags the upturn.
If you want to play oil other than the individual companies, the ETF symbols are (DBO), (USO) and (DXO)
By Todd Sullivan