Business

Why Some Oil Companies Are On A Buying Binge In The Midst of Mass Layoffs

Low crude oil prices often lead big energy companies to gobble up smaller ones. But merger and acquisition activity in the sector is modest compared to previous downturns.

Some oil companies are implementing massive layoffs while also acquiring new assets.

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The oil and gas sector is now well into its second year of low crude oil prices. Companies have laid off tens of thousands of workers across Texas as a result. Yet businesses posting some of the biggest job cuts are also spending billions of dollars to buy up competitors.

Royal Dutch Shell provides one of the best examples. The Anglo-Dutch firm plans to cut 2,200 jobs by the end of the year. But Shell is also spending $50 billion to complete its purchase of rival BG Group.

"There's two different things going on here," says Loren Steffy, managing director for 30 Point Strategies and a writer-at-large for Texas Monthly. "In the short term they're hurting, because oil prices are quite low and it's hard for companies, especially companies the size of the majors to make money in this environment. But they're also trying to reposition themselves for the future."

Shell is gambling that natural gas, in which BG Group is a dominant player, will ultimately play a much bigger role in meeting global energy needs.

Normally, merger and acquisition activity in the oil sector picks up during a downturn. This time, there are actually fewer deals than usual. "I think companies are much more cautious this time," Steffy says. "You know, this isn't a demand-driven slump, and so they're trying to figure out how long it's going to go on” and people is trying to preserve cash because of that uncertainty, he adds.

Steffy says energy companies are used to consolidating when the demand for oil is weak. When demand rises, so do prices. This time, the problem is an excess of oil supply, and no one seems to know how long the glut will last.

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Andrew Schneider

Andrew Schneider

Politics and Government Reporter

Andrew heads Houston Public Media's coverage of national, state, and local elections. He also reports on major policy issues before the Texas Legislature and county and city governments across Greater Houston. Before taking up his current post, Andrew spent five years as Houston Public Media's business reporter, covering the oil...

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