By Georgina McCartney and Arathy Somasekhar
HOUSTON (Reuters) -ConocoPhillips CEO Ryan Lance told employees on Thursday that one of the reasons he had to cut up to 25% of the workforce was because the U.S. oil and gas producer had become less competitive as it focused on swallowing smaller rivals.
Lance was speaking to employees in a town hall meeting a day after he sent employees a video announcing the job cuts as part of a broad restructure focused on cost reductions.
Employees watching the hour-long meeting online and in person at the company’s Houston headquarters on Thursday morning also learned later that day that layoffs would begin as early as November 10.
Lance said he had prioritized recent acquisitions over controlling costs.
“The cost and the whole competitiveness of the company probably took a backseat to those initiatives and those things we were doing for very real reasons, important reasons for the company,” Lance said in a recording of the town hall heard by Reuters.
“I fault myself for not paying attention and keeping the other things sort of centered and important,” added Lance, who has been in the top job for 13 years.
“I have to pay more attention to it,” Lance said, referring to the sustainable structure and health of the company.
Conoco bought smaller peer Marathon Oil last year for $22.5 billion. In 2021, it bought Concho Resources for $9.7 billion, and also acquired Permian assets from oil major Shell for $9.5 billion. The energy industry has gone through the largest consolidation in a generation in the past two years.
“We probably backslid a little bit in the cost effort… maybe we should have been smarter about how we did it,” Lance told employees in the town hall.
Shares of the third-largest U.S. oil producer declined 3.7% to around $92.22 on Friday, outpacing a 2.4% drop in the broader S&P 500 Energy Index.
Though many expected job cuts after the company flagged the need to cut costs, the scope of the reduction surprised the industry, said Ed Hirs, an energy fellow at the University of Houston.
“It is like Lance took his hands off the steering wheel,” said a Conoco source, who attended Thursday’s town hall meeting.
The source, who declined to be named because they were not authorized to speak on the record, said that while they appreciated the honesty from Lance, they also felt he avoided answering certain questions.
“Lance was just dancing around the questions and not answering directly. Things did not feel any more transparent or clear after the town hall,” the source added.
An employee asked how people would be laid off fairly and with dignity during Thursday’s town hall. The atmosphere was one of disappointment and frustration, the source said.
“There is a lot of weight in this decision, and it is what we need to do for the company’s long-term growth and success. Our executive leadership team and I take this seriously, and I don’t underestimate the impact that it has on people, on families and on the workforce that we have within our company,” Lance said on Friday in a statement to Reuters.
While management changes are expected to be announced mid-September, there will be no changes or cuts to the executive leadership team, a source familiar with the matter said, adding that the company’s executive leadership team shrank by two to seven this year due to retirements.
“The management team still remains pretty solid in my opinion, the company continues to high-grade the portfolio, look for ways to monetize non-core assets and manage costs,” said Simon Wong, energy portfolio manager at investment firm Gabelli, which has a 0.05% or approximately $50.8 million stake in ConocoPhillips, according to LSEG data.
TOUGH JOB MARKET
The job cuts at Conoco are the latest hit to a major oil and gas company, an industry facing rising costs and lower prices as OPEC+ brings more production online in a bid to regain market share.
Workforce reductions undermine U.S. President Donald Trump’s promise to increase U.S. oil and gas production and its clout in global markets.
Conoco’s controllable costs have risen by about $2 per barrel from 2021 to 2024, to $13, making it harder for the company to compete, Lance said in Wednesday’s video message.
“That has been our problem. Unit cost is rising faster than our production and our revenue, which is eating into our margin, and obviously you can’t let that go on forever,” Lance said during Thursday’s town hall.
Conoco has targeted about $1 billion in cost savings related to its acquisition of Marathon Oil last year, and the company has also said it wants to save another $1 billion by the end of 2026 from layoffs and other cost-cutting measures targeting lease operations, transportation and processing.
In April, two sources told Reuters that Conoco had hired management consulting firm Boston Consulting Group to advise on the restructuring and layoff program, referred to internally as “Competitive Edge.”
“Everybody just scrambled and started looking for something else after that, because we were unsure what the outcome would be and who would get let go because there are a lot of positions within the facilities that do not need to be there,” said a second source, who left ConocoPhillips last month.
(Reporting by Georgina McCartney and Arathy Somasekhar in Houston; Editing by Liz Hampton, Simon Webb and Marguerita Choy)
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