Why this downturn is hard on people

David Knott
London
[email protected]

A business mogul, asked the secret of his success, once said that he bought shares cheaply when everyone else was selling and sold them at a profit when everyone else was buying.

In the petroleum industry, the lag time between the onset of low oil prices and the cancellation of projects and staff layoffs has passed: mergers and payroll trimming show that hard times are here.

As an example of what's ahead, Salomon Smith Barney Inc., New York, predicts that worldwide exploration and production expenditures will fall by 11% in 1999, the most severe contraction since 1986.

The analyst's annual survey of upstream spending showed "the most tentative and uncertain sentiment in the E&P industry since the mid-1980s, creating the possibility that spending could be curtailed further if oil prices do not firm."

Almost 30% of respondents were said to be pessimistic about the 3-year outlook for the E&P sector, while two thirds expected oil field services prices to fall further in the coming year (see related story).

This forecast was based on an assumed oil price of $14.67/bbl for West Texas intermediate crude: "Continuation of oil prices below $12/bbl for an extended period could prompt further reductions."

Talent pool

PA Consulting Group plc, London, says there is a growing pool of highly talented petroleum executives available as a result of the current downturn.

The company's PA Executive Search & Selection unit, a global recruitment agency, is putting a spin on the mogul's advice by suggesting oil companies should recruit now while there is a glut of skilled people available.

PA says this downturn will take a different course from the previous one, with less than a quarter of redundancies involving staff whom companies think are expendable.

Most layoffs in this downturn will be caused by structural business changes, said PA; it is more likely that executives will lose their jobs because of where they have been working rather than how they performed.

No fat

Andrew Millard, oil recruitment specialist at PA, said: "In the last recession, companies were suffering because of the excesses of the 1980s, and they needed to tighten their belts. Today, most companies are already lean and relatively efficient.

"We find the changes now being made involve cutting back or eliminating entire business units. There has also been an increasing trend towards global acquisitions and mergers to gain market share and reduce overheads, all of which results in job losses.

"Regardless of ability, lots of people are losing their jobs through no fault of their own. This is reflected in the impressive quality of people now applying for senior management positions."

Millard believes that recruiting talented people now would bring enormous gains; however, it is a moot point whether today's lean, mean petroleum firms have enough fat reserves to allow long-term thinking.