O&G players worldwide cutting costs amid triple-threat

KUALA LUMPUR: The oil and gas industry, once stable and resistant to change, is now under intense pressure to rethink how it operates.

Shifting global demand, ongoing geopolitical tensions and cost-cutting measures by oil and gas players worldwide amid triple-threat conflicts and volatile commodity markets are forcing the sector to adapt like never before, according to FMT.

Recently, major international corporations such as Shell, BP and Chevron undertook comprehensive operational restructuring, including significant workforce reductions.

Investment strategies are being reshaped by the triple-threat of rising operational expenses, tougher environmental regulations, and the substantial cost of adopting advanced technologies, resulting in significant adjustments to workforce size and structure.

Out-of-commission oil fields

Operating costs have risen, especially in upstream exploration and production, the portal said.

With the easier-to-reach resources fast depleting, oil companies must now tap into the more difficult reserves like sour gas and deepwater projects, which require higher investment.

As a result, oil companies have begun re-evaluating their corporate investment plans, with a projected 6.0 per cent decline in upstream oil investment projected in 2025, the first year-on-year reduction since 2020.

FMT said oil companies are struggling as drilling costs rise and price forecasts weaken. Active rigs are drilling at significantly lower levels slowing upstream activity.

With oil prices hovering around US$63 per barrel, shrinking profit margins are forcing firms to delay or cancel projects.

Earlier this year, ConocoPhillips exited its joint-venture with Petronas in the US$3.3 billion (RM13.7 billion) Salam-Patawali deepwater oil and gas project, first discovered in 2018.

The company has also announced plans to shrink its global workforce by end-2025.

They are also reportedly eyeing the sale of assets in the Permian Basin worth over US$1 billion (RM4.2 billion).

They are not the only ones.

US-based Chevron plans to cut 15-20 per cent of its global workforce, potentially impacting 6,000 to 8,000 employees, over the next year.

Meanwhile, ExxonMobil will release nearly 400 workers in 2026 following its merger with Pioneer Natural Resources.

BP, based in the UK, is in the midst of plans to eliminate 4,700 jobs and 3,000 contractor positions by 2026 as part of a US$2 billion cost-cutting drive.

In the UK’s North Sea, Spain’s Repsol is also looking to shrink its workforce through field decommissioning, potentially impacting 2,000 jobs.

These layoffs reflect a broader industry trend of adapting to economic uncertainties, declining output from maturing fields, and the increasing focus on cost optimisation and energy transition.

Impact of green regulations

Adherence to environmental compliance is also becoming increasingly capital-intensive, the portal said.

More stringent global regulations concerning carbon emissions, flaring and methane management are obliging companies to allocate significant investment towards monitoring systems, equipment upgrades and cleaner processes.

This includes a growing focus on Carbon Capture, Utilisation and Storage (CCUS) projects, which are projected to experience a tenfold increase in investment by 2027.

Non-compliance with these evolving environmental, social and governance (ESG) criteria pose significant business risks, such as limited access to funding and reputational damage.

To manage these rising obligations, many entities are streamlining their workforces in high-carbon divisions.

Heavy upfront costs

Companies are investing more in advanced technologies like automation, artificial intelligence (AI) for data analysis and compliance, and monitoring systems powered by the Internet of Things (IoT) to improve efficiency and meet regulatory demands.

The portal said while these technological upgrades may yield long-term cost reductions, their implementation necessitates substantial upfront capital expenditure, such as modernising rigs with automation capabilities or deploying sophisticated AI-driven monitoring systems.

Widespread adoption of AI alone could potentially lead to cost savings ranging from 10 per cent to 20 per cent by 2025.

This shift toward technology-driven models is streamlining operations, replacing traditional roles with automated solutions, and consolidating functions to boost productivity and financial stability, rather than simply expanding existing setups.

Prominent industry participants such as Exxon and Chevron are focusing production growth in more efficient regions like the Permian basin, leveraging consolidation and technology-driven improvements to manage costs amid declining upstream investment.

Petronas, for its part, is focusing on innovation, sustainability and human capital development to support Malaysia’s net-zero journey.

This commitment involves not only accelerating investments in renewable energy and advanced low-carbon technologies, but also cultivating a forward-thinking workforce equipped to tackle the dynamic challenges of the global energy landscape.

By nurturing talent, fostering a collaborative culture, and prioritising digital transformation, Petronas aims to drive meaningful progress towards environmental goals while securing long-term business growth.

Enhanced partnerships, research initiatives, and community engagement will be central to this strategy, positioning the company as a leader in sustainable energy and responsible corporate stewardship for Malaysia’s future.

Where do we go from here?

The overarching imperative is clear: oil and gas companies are re-conceptualising business practices to better navigate current cost pressures and align with future energy demands.

Strategic actions are already evident at major international corporations like BP, Shell and Chevron, the portal said.

These are not merely reactive measures to short-term market changes, but critical strategic decisions made to ensure that the energy industry remains future-ready.

This trajectory implies a reduction in traditional employment opportunities within the short term.

However, that is on account of the evolution of industry operations, not a disappearance of energy demand.

Industry experts expect jobs to re-emerge in greener fields, including CCUS-management projects, within the next two to three years, once cost savings are realised.

© New Straits Times Press (M) Bhd

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