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Gloomy ConocoPhillips data set stage for severe cutbacks among rivals

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By Sheila McNulty in Houston

Published: January 26 2009 02:00 | Last updated: January 26 2009 02:00

ConocoPhillips, the third largest US oil company, set the stage for drastic cutbacks by the world’s international oil majors on the drop in fourth-quarter earnings to be reported this week following plunging oil prices, writes Sheila McNulty in Houston .

Conoco shocked the industry this month by laying off 1,300 in spite of an increasingly aggressive recruiting campaign for a big pipeline of projects. Schlumberger, the world’s biggest oil services company, followed suit on Friday by laying off 5,000.

The plunge in oil prices to below $40 a barrel, from a high of just under $150 a barrel last year, coupled with the economic slowdown and credit squeeze has hit hard.

Conoco scaled back $2.8bn in capital spending over last year, and reported a $34bn writedown. More details of its financial health will come on Wednesday when it reports earnings, the same day as Royal Dutch Shell. Some analysts warn Royal Dutch Shell will report its largest quarterly fall in profits for a decade because of the oil price fall.

Chevron, the second biggest US oil major, has cut back some development plans, and more details are expected with its financial results on Friday.

ExxonMobil, the world’s biggest listed western oil company, is also to report on Friday, but has said spending will remain steady.

While much of Conoco’s writedowns were linked to its investments including the Conoco and Phillips merger, Burlington Resources buy-out and its 20 per cent investment in Lukoil, all the majors will be suffering from a drop in values.

Yet analysts guard against rushing to lay-offs and spending cutbacks, given future projections for energy demand growth and the difficulties in ramping up following retrenchments.

“They’re acting pretty precipitously, given we don’t have a full picture,” said Amy Myers Jaffe, energy expert at Rice University. “Is there a fundamental shift in thinking that demand is now capped at 100m barrels per day?”

The lay-offs, Conoco says, are to “position ourselves in the current business environment to live within our means”.

Daniel Yergin, an energy expert and the author of The Prize, an oil industry history, notes that US petrol demand peaked in 2007 and ideas about global oil demand must be rethought.

The Obama administration w ill stress curbing carbon dioxide, expanding alternative energies and improving energy efficiencies – cutting into demand. However, needs will continue growing in emerging markets with growing populations. and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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