ConocoPhillips, the US oil and gas producer, announced on Wednesday that it will reduce its workforce by 20-25% as part of a comprehensive restructuring plan, following rumours that CEO Ryan Lance outlined the program in a video message earlier that day.
In early trading, the company’s shares fell 4.1% to $94.90, highlighting investor concerns about the size of the cuts and growing costs that have put ConocoPhillips behind its peers.
Rising costs prompt restructuring
“As we streamline our organisation and take work out of the system, we will need fewer roles,” Lance said in the video message, according to those who saw it.
He stated that escalating expenses had put the company at a disadvantage, with controllable production costs being $2 per barrel higher than those of its competitors.
Production costs rose from $11 per barrel in 2021 to $13 per barrel by 2024.
ConocoPhillips now employs approximately 13,000 people worldwide, which means that 2,600 to 3,250 jobs could be removed.
The majority of the cuts are likely to take place by the end of the year, ConocoPhillips spokesperson Dennis Nuss told Reuters in an email.
Reorganization timeline
The new structure and management team are set to be announced in the middle of September, according to two sources familiar with the company’s plans.
The whole reorg is predicted to be complete by 2026. Further, a town hall meeting is planned by ConocoPhillips on Thursday at 9 a.m. Central Time, where the company will discuss the changes with its employees.
This restructuring initiative, dubbed “Competitive Edge” internally, is being directed in part by the Boston Consulting Group, which ConocoPhillips hired earlier this year, two sources told Reuters in April.
Cost-cutting and margin initiatives
This layoff is one of the several steps taken to achieve cost efficiencies. In November, the company reported that it had identified greater than $1 billion in new cost reduction and margin enhancement opportunities.
These cost cuts are in addition to over $1 billion in savings from the merger of ConocoPhillips with Marathon Oil last year.
The cost-cutting drive comes at a time of falling profits. ConocoPhillips’ net income came to just below $2 billion in the second quarter, the lowest since the quarter ending March 2021, when demand plummeted in the early days of the COVID-19 pandemic.
Industry-wide trend
ConocoPhillips is not alone in reorganising its personnel. Earlier this year, oil major Chevron (CVX) and oilfield services business SLB (SLB) both announced layoffs, underscoring greater cost concerns in the United States energy industry.
The corporation has portrayed the restructuring as an essential step to remain competitive in an era of rising prices and changing market conditions.
Lance stressed that lowering responsibilities and streamlining operations will help ConocoPhillips better align with its counterparts and increase long-term profitability.
Outlook
Analysts say those measures indicate an increased emphasis on operational excellence and cost discipline in response to volatile energy markets, and may prove valuable in the coming years.
This move is typical of the company’s philosophy: a compromise between short-term cost reduction and sustainable business strategy, seeking to transform the business while remaining operationally competitive in a harsh market environment.
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