Thread regarding ConocoPhillips layoffs

Layoffs?

Yep.
Good for shareholders, bad for employees. Same old story.

The pending merger of ConocoPhillips and Marathon Oil, the latest deal in a string of big oil consolidations that are thinning the industry’s workforce and boosting companies’ bottom lines, could add to the tally of Houston-area layoffs.

Executives for Conoco, which plans to acquire Marathon for $22.5 billion this year, said during an investor call Wednesday that they expect the combined company to save $500 million annually in costs, including $250 million in general and administrative costs related to salaries, benefits and facilities.

That is likely to bring a reduction in force for the West Houston-headquartered oil companies as they eliminate areas of overlap.

“Anytime you’re talking about G&A cost reductions, that tends to mean headcount and facilities, so I would expect we’ll lose a number in the combination,” said Dan Pickering, chief investment officer for Pickering Energy Partners. “The deal itself is not a transformational combination for Conoco, but I think one of the elements that makes the numbers work is a pretty big cost savings number, so I think we’ll see that impact Houston.”

The consolidation wave sweeping the oil industry is a double-edged sword for Houston, which benefits from healthy oil companies but feels the pain when keeping them healthy means consolidating staff and real estate.

Oil companies are employing fewer people even as they produce more oil than ever — an employment trend that began decades ago, said Patrick Jankowski, senior vice president of research at the Greater Houston Partnership. This latest consolidation wave continues the trend.

“It won’t have any impact on output,” Jankowski said. “But it will have an impact on Houston for people who are going to lose their jobs, lose their livelihoods.”

Conoco, headquartered on North Eldridge, said Thursday that it has 2,100 employees in Houston. Marathon, which relocated its corporate offices to West Houston’s CityCentre in 2021, had 774 employees in Houston in 2022. Marathon did not reply to requests for comment about its current local headcount.

The companies did not answer questions about how the merger would affect their employees and real estate in Houston.

Andrew O’Brien, Conoco’s senior vice president of strategy, said Wednesday during an investor call that the company planned to “reduce overlapping costs across the combined organization,” according to a transcript provided by Capital IQ.

“We both have field offices and operations that are essentially crisscrossing each other in the field,” O’Brien said, noting the company would “mobilize the workforces and combine that footprint” after the merger.

The largest area of impact is likely to be related to the companies’ corporate offices, said Josh Young, chief investment officer for the Houston equity investment firm Bison Interests.

“There probably will be significant labor force reductions,” Young said. “It’s tough because the Houston office market is not doing great."

Houston has long been saddled with an oversupply of outdated office space that has pushed the market’s office vacancy rate above 25% in the first quarter, according to real estate services firm JLL.

Whether the ConocoPhillips-Marathon merger significantly affects the commercial real estate market in Houston hinges on the headcount of the combined company. The companies together have about 1.5 million square feet of office space in West Houston.

“Administrative cost cuts often involve layoffs and consolidating locations,” said Itziar Aguirre, director of market analytics at real estate data firm CoStar. “That said, both companies have single-occupier office buildings that are in great locations — ConocoPhillips in the Energy Corridor and Marathon Oil in the mixed-use CityCentre.”

The merger comes a little more than two years after Marathon Oil moved to a new 15-story, 440,000-square-foot office tower in Midway’s CityCentre, a popular 50-acre mixed-use project at the southeast corner of Interstate 10 and Beltway 8.

At the time, Marathon said relocating from its longtime headquarters in the Uptown-Galleria area would drastically reduce costs and cut commuting times for employees. A Marathon spokesperson said in late 2019 that more than half of the company’s local employees lived in West Houston and Katy.

Commuting has become a driving force behind energy companies’ office decisions in recent years. A number of companies have moved to West Houston to be closer to their employee base, noted Robert Kramp, vice president of research at real estate firm Transwestern.

“It is (about) that concentration of talent,” Kramp said. The fact that Marathon employees already are used to commuting to West Houston could help with the transition for those who stay. “They’re already out there, so they’re just changing their garage badges from one building to the next.”

Marathon employees would have to go only about 4 miles west to hit ConocoPhillips’ headquarters. In 2018, ConocoPhillips relocated from its sprawling 1980s-era office to 925 and 935 N. Eldridge Parkway, where it operates in about 1.15 million square feet.

ConocoPhillips effectively owns 925 N. Eldridge Parkway through what’s called a synthetic lease, a financing structure that allows a company to lease a building back to itself, according to CoStar. Marathon Oil also owns its headquarters through a synthetic lease, according to CoStar and Transwestern data.