BP says it will cut the jobs of 10,000

Energy firm citesfallout from virus

Petroleum storage tanks at the BP Indiana Tank Field in Whiting, Ind., are shown in April. BP chief ex- ecutive Bernard Looney has pledged to reduce the company’s capital expenditures by 25% this year. (AP/Charles Rex Arbogast)
Petroleum storage tanks at the BP Indiana Tank Field in Whiting, Ind., are shown in April. BP chief ex- ecutive Bernard Looney has pledged to reduce the company’s capital expenditures by 25% this year. (AP/Charles Rex Arbogast)

LONDON -- Oil and gas company BP announced Monday that it will slash its global workforce by 10,000 jobs as the covid-19 pandemic slams the energy industry.

Chief Executive Bernard Looney said that the cuts will affect office-based roles in BP's global workforce of 70,000 people and come mostly this year. The move will mostly affect those holding senior roles, with the top 400 positions expected to be cut by one-third.

"We are spending much, much more than we make -- I am talking millions of dollars, every day," Looney said in an email to staff that revealed that net debt rose by $6 billion in the first quarter. "We have to spend less money."

He pledged to bring down capital expenditures by 25% this year, a reduction of about $3 billion. He also said it costs $22 billion a year to run the company, including $8 billion in personnel costs.

"So we are driving down those operating costs by $2.5 billion in 2021 -- and we will likely have to go even further," he said.

The job cuts come at a time of change for London-based BP. It had already embarked on a restructuring plan to ensure its long-term viability as the world decreases its reliance on fossil fuels in an effort to fight climate change. BP wants to eliminate or offset all carbon emissions from its operations and the oil and gas it sells to customers by 2050, an ambitious target.

The wider energy industry has meanwhile been hit hard by the pandemic as the widespread limits on business, travel and public life reduced the need for oil, gas and other fuels.

Supply of oil and gas was particularly high when the outbreak began, creating a perfect storm for the industry. With storage facilities filling up, the U.S. price of oil went below zero in April for the first time ever.

"To me, the broader economic picture and our own financial position just reaffirm the need to reinvent BP," Looney said in the email. "While the external environment is driving us to move faster -- and perhaps go deeper at this stage than we originally intended -- the direction of travel remains the same."

The U.S. contract for crude oil began the year at over $60 a barrel, collapsed to minus-$37 in April and recovered to about $39 a barrel as of Monday as OPEC countries agreed to limit production.

David Elmes, who leads the Global Energy Research Network at Warwick Business School, said BP's cuts are symptomatic of the wider challenges facing the industry, with firms in the sector thinking about cutting costs.

"BP and the other European-based international companies have already said they will become less focused on oil and gas over time," he said. "If this situation continues, there will be intense discussions about what can they do to move faster."

BP also spends about $8 billion a year in dividend payments to shareholders. The company has come under scrutiny for maintaining the payout even as its debt increased. While Looney has dodged repeated questions on whether a cut to its dividend is in the cards for the second quarter of the year, he has said its a decision made by the board on a quarterly basis. That compares to previous comments in which he said it was BP's job to maintain the dividend.

The move stands in contrast to European rival Shell, which slashed its dividend by two-thirds last quarter. The Dutch company is undertaking its own reorganization, but so far is offering financial incentives for voluntary resignations, scaling back on external recruitment and reviewing expatriate staff contracts, according to people with knowledge of the matter. In a memo to staff, CEO Ben van Beurden said that over the coming months, Shell would "go through a comprehensive review of the company."

BP had committed to a three-month freeze on job cuts during the peak of the pandemic, starting in early March. Promotions were also frozen but will resume in July "in a measured way," Looney said. Cash bonuses for the year will be "very unlikely," he said, without clarifying whether that extends to BP's trading division. Staff will be able to apply for voluntary resignations starting Monday.

[CORONAVIRUS: Click here for our complete coverage » arkansasonline.com/coronavirus]

Senior management will also not receive pay increases this year, while junior and mid-ranking staff will only get them from October. Employees at filling stations won't be included in the reorganization as they're considered front-line workers. Their wages rose in April and will climb again in August.

Major companies like BP with diversified businesses are likely to survive the pandemic, but smaller oil producers are going to have a harder time, analysts say.

U.S. shale companies in particular took on a lot of debt to finance operations and can only make ends meet at about $40 a barrel. Heavily-indebted companies will have to refinance at a time of capital constraint.

Some companies are already going under. Whiting Petroleum, a shale producer, filed for bankruptcy protection in April, followed by Diamond Offshore Drilling. More are expected.

Information for this article was contributed by Danica Kirka of The Associated Press and by Laura Hurst of Bloomberg News.

Upcoming Events