Energy Giants Chevron, Saipem To Cut Over 10,000 Workers

U.S. energy giant Chevron Corporation (NYSE:CVX) and Italian oil contractor Saipem SpA announced Tuesday that they would lay off over 10,000 employees in an effort to offset declining crude prices.

Mirroring the announcement, Saipem’s shares dropped nearly 9.9% to 7.34 euros each, while Chevron shares were little changed in after-hours trading.

Chevron to trim 1,500 employees

As detailed by ValueWalk last May, Chevron Corporation unveiled earnings results from its first fiscal quarter, posting earnings of $1.37 per share on $32 billion in revenue, against 79 cents per share on $26.5 billion in revenue anticipated by analysts. However, in the same quarter last year, the oil giant reported earnings of $2.36 per share on $51 billion in revenue.

The oil giant’s management blamed the decline in earnings for the first quarter on tumbling oil prices. Management also indicated that their response to the lower oil prices included cost reductions and streamlining the company’s portfolio.

In its efforts to trim costs to counter falling oil prices, Chevron Corp, the second-largest U.S. oil company, said Tuesday that it would lay off 1,500 employees, with nearly all of the layoffs in Texas. The layoff represents 2% of the oil giant’s global workforce.

Interestingly, Chevron has expanded in Texas in recent years to develop land in the Permian shale formation. The oil giant had previously labelled the Permian as one of its premium assets.

The cost pruning effort will take place across 24 business groups in its corporate center, and will result in cost reductions of about $1 billion.

Saipem to axe 8,800 jobs

In a related development in Europe, Italy’s biggest oil and gas contractor announced a restructuring plan Tuesday that includes 8,800 job losses as it cuts costs to counter falling oil prices.

The Italian oil contractor, controlled by Italian oil producer Eni SpA, reported a second-quarter net loss of 997 million euros ($1.1 billion), after total write downs of assets for 929 million euros on Tuesday. However, analysts were anticipating a 39.1 million-euro profit.

Saipem said in a statement it expected to post a net loss this year of around 800 million euros and an operating loss (EBIT) of around 450 million euros.

Saipem’s earlier guidance had pegged net profit for the year at between 200 and 300 million euros and operating profits of 500 to 700 million euros.

Saipem’s chief executive officer Stefano Cao said in a statement: “The further steep fall in oil prices has resulted in a major disruption, which is not likely to be reversed in the short-to-medium term”.

Low oil and gas prices have prompted major oil companies and governments to cut energy investments and shelve projects, starving oil service companies of business. Saipem’s turnaround plan will include the downsizing of some of its construction yards, such as the one in Brazil, and scrapping vessels. However, the oil contractor clarified that it will not be selling any assets.

The Italian oil contractor, which employs around 50,000 people, said it would cut 8,800 jobs around the world in 2015-2017 as part of a turnaround plan that sees savings in the two years amounting to 1.3 billion euros.

Saipem is trying to phase out so-called low-margin legacy contracts awarded between 2013 that have weighed on profits and stretched the balance sheet.