O&G industry to continue job cuts

O&G firms globally likely to continue to cut their spending as they have yet to recover from the global slump in oil demand


WEAKER investments and global shift to low-carbon energy sources are expected to drive job cuts further in the oil and gas (O&G) industry with over 400,000 jobs axed last year alone.

Asia School of Business Assistant Prof Dr Renato Lima de Oliveira expects O&G companies globally to continue to cut their spending as they have yet to recover from the global slump in oil demand due to Covid-19.

National O&G companies like Petroliam Nasional Bhd (Petronas) and Saudi Aramco are further expected to pay hefty dividends to help respective federal governments manage their fiscal deficit as the Covid-19 battle continues.

Petronas has committed to an extra RM10 billion dividend on top of its scheduled RM24 billion dividend to the government for the year 2020. Saudi Aramco also said it would pay US$75 billion (RM303 billion) in dividend to the Saudi government.

In addition to external factors, De Oliviera said local factors also make it harder for the industry to attract fresh capital.

“Malaysia’s O&G fields are mostly matured, without new giant fields to attract investors’ appetite. Additionally, new taxes imposed by Sarawak and potentially other states like Sabah have increased operating costs, though the prospect of doing business here remains uncertain.

“Together, they point to the need to rethink the market entry conditions and costs, and push Malaysian companies to internationalise and diversify their operations,” he told The Malaysian Reserve (TMR) via email.

Most recently, Shell Malaysia Trading Sdn Bhd announced that it is reducing its workforce in the country by nearly 300 staff, mainly in the company’s upstream division, over the next two years.

Its parent company, Royal Dutch Shell plc, previously announced that it would cut 7,000 to 9,000 jobs globally by 2022 as part of its plans to shift focus to the renewable energy and power sectors.

Shell employs 83,000 people worldwide, including 6,000 in Malaysia. Centre for Market Education CEO Dr Carmelo Ferlito said the Movement Control Order and the new state taxes in Malaysia only serve to accelerate the industry’s transformation.

Meanwhile, another industry expert, who preferred to remain anonymous, told TMR that it is not surprising if the O&G industry undertakes a broader comprehensive retrenchment exercise given the state of the pandemic.

“It won’t be surprising as we can see it from Petronas’ activity outlook. There is generally no huge uplift in terms of activities across the country’s O&G industry,” he said.

The Bursa Malaysia Energy Index fell by 344.47 points or 27.76% throughout last year to end at 896.39 points. The index continued its decline this year by ending 49.61 points or 5.53% lower at 846.78 points yesterday.

Hibiscus Petroleum Bhd is the only gainer on the index so far this year. Laggards led winners 23 to one on the index with one counter unchanged.