Oil Firms Face Further Job Cuts as Mega Miners Shares Rise

Price of oil is slowly recovering but it is too late for many oil and gas companies who reveal they plan more job cuts this year

Karen Kwok 6 June, 2016 | 4:16PM
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The UK’s oil and gas companies will continue to cuts jobs this year in an effort to reduce operating costs despite the oil price starts recovering.

The Bank of Scotland/Lloyds Banking Group’s fifth annual oil and gas sector report surveyed more than 140 companies of all sizes within the sector. It revealed that 51% of companies have cut jobs in the past 12 months, becoming one of the “predictable, tactical efforts to reduce costs” by oil producers. The report found that only one new job created for every six lost in 2015.

Companies based in Scotland are under most pressure, with 63% of them have had to cut jobs in the past six months.

Major firms are concentrating on efficiency measures or cost-cutting. The proportion of firms aiming either to scale back operating costs or to implement efficiencies is at its highest in Scotland at 55% and lowest in East Anglia at 38%, a part of England being much more focused on gas which is less affected by oil price falls.

Fewer Job Losses in 2016

In 2016, companies planned more job cuts, but number losses were expected to be fewer, at about a third of the cuts made in 2015, the survey unveiled. However, the total cuts across the North Sea and the onshore supply chain may still number in the thousands, the report warned.

When oil and gas companies were asked about oil prices, the majority of them anticipated “lower for longer” pricing, not expecting Brent crude to recover to a sustained level of $75-80 per barrel until 2020 or later.

Despite muted outlook, Stuart White from Bank of Scotland believed that prices have begun to slowly and modestly recover, saying a quarter of the firms surveyed had grown through the downturn. About 30% of companies hope to grow their business by diversifying.

“They have taken the opportunity to diversify into new sectors and markets, collaborate with other firms, invest in new technology and innovate, and these actions will help create an industry that is far more efficient and resilient in the future,” said White, “Though there are undoubtedly more difficult decisions to be taken on cost savings, jobs and investment, cautious optimism for the future outlook appears to be slowly returning.”

Mega Miners Gain Ground, Push Up FTSE

While the latest survey revealed that future of oil and gas companies remain negative, mining sector today has by far the best performing sector in FTSE 100 thanks to rising commodities prices.

Five biggest mining companies in the UK by market value all gained more than 6% at the end of the trading day. Anglo American (AAL) gained 12.1% at 4pm on Monday while Rio Tinto (RIO) increased 6.8%. Glencore (GLEN), BHP Billiton (BLT) and Antofagasta (ANTO) were up more than 6%.

Commodity prices rose due to a weaker dollar on the back of poor non-farm payrolls on last Friday. It raised doubts about whether the Federal Reserve will hike interest rates this summer.

The main event in the economic calendar comes after the London stock market close, when Federal Reserve Chair Janet Yellen speaks to the World Affairs Council of Philadelphia about economic outlook and monetary policy at 5.30pm London time. Investors will be eager to hear what Yellen has to say after the disappointing nonfarm payrolls number on Friday.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Anglo American PLC2,458.00 GBX-3.91Rating
Antofagasta PLC2,270.00 GBX-1.77
Glencore PLC484.05 GBX-1.01Rating
Rio Tinto PLC Registered Shares5,468.00 GBX-2.16Rating

About Author

Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk

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