Total Maintained

This might be encouraging for Total employees, but for their shareholders less so:

French energy company Total expects a drop in 2015 results but does not plan to cut jobs as peer BP has done to weather currently low oil prices, its chief executive said in a radio interview on Tuesday.

Patrick Pouyanne told Europe 1 that the group had the financial capacity to weather low oil prices.

Pouyanne said Total like its peers was being hit by the fall in crude prices and that the company expected its results to drop by 20 percent.

Asked if Total would cut jobs, Pouyanne said: “No. We are used to these cycles, and jobs cannot be the adjustable variable because I’ll need these workers when the price goes back up, and it will go back up someday. I don’t know when.”

Pouyanne said Total had decided instead to not replace all retiring staff and to hire fewer people.

As we discussed here, Total was already overstaffed to the tune of 40,000 employees in 2014 when the oil price averaged $85 per barrel and their profits had dropped by 70% since 2012.  If profits are taking another 20% hit, they’ll be coming in at $3.36bn for 2015 when they are released on February 11th.  Applying our little metric from before, and assuming there has been no change to the 100,307 headcount from 2014, this means each employee is adding $33,497 of value.  Impressive.

So while it’s all very well not cutting staff, one wonders what the 2016 figures are going to look like with oil now below $30 per barrel and looking to stay that way for quite some time.  Not good I suspect, particularly in relation to Total’s peers who have all been laying off thousands (save for ExxonMobil, who were running a lean operation to begin with).

I don’t buy the argument that this workforce will be needed when the price goes back up “someday”.  Sure, you keep hold of your technical staff and those with the experience which would be costly to replace when the upturn eventually comes.  But keeping everybody?  Come off it.

For a start, there will be people there who are 2-3 years off retiring.  So when the upturn comes these guys – having been sat around on the payroll picking their noses – will leave just as they are needed.  At the very least, there should have been a round of voluntary redundancies where they get rid of all those coming up to retirement and replace them with younger, fresher bodies from the layer below.

Secondly, given Total has added over 3,000 people to its payroll between 2012 and 2014, it’s highly likely that the ranks were swelled during the past decade of bumper oil prices, with a lot of them going into administrative and support service functions.  Are we to believe that an increase in the workforce during the boom years should not be offset by a reduction during the lean times?  If so, then what happens during the next boom?  They’ll recruit another ten thousand or so?  This upwards ratchet is a common feature of large bureaucratic organisations, but alas they are normally state departments and not commercial enterprises shouldering expectations of financial performance.

Thirdly, are we really to believe that the current number of workers and the combined skillset in Total is optimum for whatever shape the industry takes when it emerges from this slump in 2, 3, or 5 years?  They were woefully overstaffed even before the downturn.  I’m of the opinion the industry will look very different to the one we all knew and loved over the past 10 years, and a return to $100+ per barrel looks like a pipe-dream with $60-70 being the best we can hope for, not to mention the likelihood of a fundamental shift towards smaller, leaner projects with lower CAPEX subject to greater scrutiny from stakeholders and cash-strapped governments.  Is Total’s organisation – which is a remnant of the previous boom and now seemingly to remain untouched – really going to be well placed to perform on a par with its peers in the new-look industry?

I suspect the real reason the entire workforce is being retained is because job cuts are politically unacceptable in France, the unions are too strong, and Total lacks the managerial personnel to oversee a serious redundancy programme.  Better to just borrow some money and press on regardless.

“That was awfully nice of him!”

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