Under fluctuating global oil and gas market, General Electric Co. (GE, Financial) planned to increase job cuts in its Lufkin oil unit in Texas from earlier figure of 330 to 575 now. There is a lot of pressure on the Lufkin unit due to a huge drop in the oil prices due to which the job cuts will take place between March 26 and April 30.
Crude oil situation across the globe
Crude oil is running bearish since quite some time now. All big as well as small oil companies were relying on their budget, growth and strategy ahead on the then price of $50 per barrel scenario which now seeks immediate crisis management with current price hovering around $45. Oil Rig count has fallen big time particularly in the high-cost basins such as West Texas and in Montana where infrastructure isn’t much developed.
One of the reasons behind the drop in prices is decreased demand and global economy in downwards motion. Oil prices worldwide have fallen almost 40% in the past six months leading to job cuts to the tune of 100,000 by several oil and gas companies worldwide along with approximately $40 billion lesser investments. In such a situation, while the big companies are taking the route of cutting jobs and spending, smaller companies are choosing bankruptcy and similar options. The most affected are the exploration and production companies, the integrated oil companies and the oilfield services.
GE’s association with Lufkin oil unit
Based in Texas, Lufkin Industries used to be one of the largest employers in the region. It had 4,400 employees at the end of 2012 before it was acquired by GE.
American multinational conglomerate General Electric, headquartered in Connecticut, has its operations in Power and Water, Oil and Gas, Energy Management, Aviation, Healthcare, Transportation and Finance. Its Oil and Gas unit in 2013 acquired the oilfield pump maker Lufkin Industries for about $3.31 billion to boost its presence in the global oil market. However its plans fell flat due to the ever-decreasing oil prices. Oil used to be GE’s savior. There was a time when, through a $10 billion buying spree in 2013 in the oil and gas sector, GE was believed capable of coming out of a financial crisis. The company might have never thought oil prices, which had remained above $100 a barrel for a long time, would drop to $50 a barrel. A lot of oil companies have followed the route of job cuts and GE did the same by announcing 330 pink slips in January which increased to 500 in February and eventually 575. Currently, 44,000 workers are employed under GE’s gas and oil unit. The company had already warned about its diminishing revenues up to 5% from oil and gas sector in 2015 and a probable job cut situation.
Future of GE’s Oil and Gas division
While its competitors like Baker Hughes Incorporation (BHI, Financial), Schlumberger Limited (SLB, Financial) and such others face similarly tough situations, GE surprisingly is still optimistic on the oil and gas situation. It is not only introducing more technologically advanced products but is also eyeing to buy weaker competitors. GE in fact is taking this crisis situation as an opportunity and not as difficult time. Following similar ideology, the company plans to announce a $850 million equipment order from Eni Ghana Exploration & Production along with developing environmentally friendly technology with Norway’s stateoil.
Conclusion
While employees at Lufkin Unit, Texas will have to opt for other employment options, GE remains positive on the growth of its oil and gas division. Backing on its several resources, GE is taking the current situation as an opportunity to capture market share and sees it as a need to improve efficiency.
