One third of global energy firms plan to lay off staff due to Covid-19 pandemic, says Mercer

One-third (34 per cent) of companies from across the global energy sector value chain have either laid off employees or plan job cuts as a result of the impact of Covid-19, according to a poll conducted by human resources consultancy Mercer. Some 71 per cent of 228 energy companies surveyed said they expect to implement a headcount freeze. The survey was conducted in the last week of April, as oil prices dropped 80 per cent from their peaks in January. “The drilling industry and the EPC [engineering, procurement and construction] industry … they were not in a good place, they had not even recovered from the previous downturn, and they were just starting again,” said Rob Thissen, energy industry leader for Mercer in the Middle East. The consultancy is a part of US-based professional services group Marsh & McLennan. “[With this situation], what we have seen is that companies in that sector have cut around 30 per cent of executive pay and 10 to 15 per cent for more junior staff,” he added. Around 48 per cent of firms have implemented or are planning to freeze pay, while 27 per cent are likely to reduce base pay, Mercer found. The oil and gas sector has been one of those hit hardest by the coronavirus pandemic, as has aviation and hospitality. Lockdown measures to prevent the spread of the virus led to airlines grounding their fleet and companies asking staff to work from home. The measures hit demand for petrol and jet fuel, adding to an already oversupplied market where prices for crude plummeted. Some benchmarks, such as West Texas Intermediate – a composite of light, sweet US crude grades – fell below zero to briefly trade at -$40 last month as storage capacity dwindled. The International Energy Agency, which termed the month Black April, estimated demand shrank by 29 million barrels per day, one-third lower than for the same period last year and the lowest monthly level since 1995. Meanwhile, oil and gas services companies have taken a hit to earnings as producers cap spending. Baker Hughes wrote down the value of its oil field services business by $1.5 billion (Dh5.5bn) and cut its 2020 spending by 20 per cent. Globally, oil and gas producers have cut capex by about 30 per cent, according to data compiled by Reuters. Big oil firms have also cut dividends, with Shell forfeiting a payout for the first time since the First World War. In the Middle East, Saudi Aramco, the biggest oil exporting company in the world, reported a 25 per cent slide in first quarter profit but its dividend policy was unchanged. Middle Eastern national oil companies are “more or less waiting and seeing” how the market unfolds, said Mr Thissen, "so they haven't implemented any salary reductions as of now”. The headcount freeze implemented by 71 per cent of companies polled globally is expected to last a long time, he said. "There is a lot of headcount reduction already here in the region. And so if that's happening, of course, we may hit economic recovery earlier and the companies will start hiring again but in general the expectation is this will last quite a long time and will also mean that the headcount freeze will stay in place for quite a long time.” Consolidation among energy services companies could define the sector after the pandemic, he said. "A lot of smaller EPC and oil and gas services companies here in the region and the private services companies will definitely suffer. I would expect bankruptcies and consolidation in that industry for the global players as well as local,” said Mr Thissen.

One third of global energy firms plan to lay off staff due to Covid-19 pandemic, says Mercer

Regional oil companies are adopting a "wait-and-see" approach to workforce numbers