Energy firms judge job cuts as integral to reorganization, survival

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Eighty per cent of Canadian energy sector firms have cut their headcount in the past two years, and companies that have reduced their staff by an "optimal" 25-30 per cent report high levels of reorganization success, according to a new study.

The analysis of Canadian corporate survival plans amidst continued low crude prices shows a correlation between significant employee reductions, and companies that self-judge their reorganization efforts as fruitful.

However, companies working to quickly contain costs were less likely to report benefits once staff reductions went beyond 50 per cent.

Ernst & Young LLP and the University of Calgary's Haskayne School of Business collected self-reported data from 72 unnamed organizations, including upstream, midstream, downstream and oilfield services companies.

The survey, which examined a process the authors acknowledge can be "confusing and miserable," was conducted in December. Tens of thousands of jobs in Canada's oil and gas sector were lost in both 2015 and 2016, and the survey suggests the restructuring isn't over yet.

"Not surprisingly, many companies were focused on short-term survival when oil prices initially dropped so dramatically in 2014," said Peter Sherer, an associate professor at the business school.

"While the majority of our market study respondents reported high levels of success with their reorganizations, many indicated that there are further changes to come."

Almost half of the companies surveyed said they had reduced staffing levels between 10-35 per cent.

Nine per cent of all respondents reduced their headcount by more than 50 per cent. Oilfield service companies, which have been the hardest hit by lower oil prices since 2014 as on-the-ground activity has plummeted, were the most likely to fall into this category.

"Our study results point to a clear relationship between greater headcount reductions and overall perceived success of reorganization efforts," said Ernst & Young's Lance Mortlock.

"The caveat however, is that this relationship becomes weaker once companies surpass a 50 per cent headcount reduction. So we're really seeing an optimal point where companies reduced headcount between 25-35 per cent."

Over all, the study authors noted companies have generally opted to reduce employee numbers over salary freezes or cuts.

They said if the industry continues in its recovery, a focus on staff reductions could generate new challenges in attracting new staff, or retaining overworked employees.

"Many organizations haven't yet taken the opportunity to examine or act on longer-term solutions such as technology investments, portfolio management or process re-engineering."