The announcement this week by ConocoPhillips that it may cut about 120 jobs in Alaska is bad news for the economy, but a state labor department official said Wednesday the damage could have been worse.
Neal Fried, an economist for the Alaska Department of Labor and Workforce Development, said Alaskans should be nervous, but not panicked about ConocoPhillips' 10-percent job cuts here.
"I wouldn't have been surprised if the number (had) been higher than that," Fried said Wednesday morning.
ConocoPhillips is the largest player in the Prudhoe Bay oil fields and has oil and gas assets across the state. The company said it has been trying to cut expenses and improve its equity position in the market over the last few quarters. The company has pared down future offshore projects but still posted a second-quarter 2015 loss of about $179 million.
Facing a worldwide supply glut of crude and a weakening Chinese economy, Alaska oil prices have dropped more than $28 per barrel over the last year, closing Tuesday at $49.41. The drop in oil prices has led ConocoPhillips and other companies to make deep cuts, as has the state, which depends on oil taxes and royalties for most of its unrestricted revenue.
In addition to the 120 projected Alaska cuts, the company announced it is laying off 400 people from its operations in the Canadian oil sands project in Alberta. Five hundred more employees are set to be handed pink slips at the company's Houston headquarters. Hundreds more will be cut from ConocoPhillips' international operations.
The news caused ConocoPhillips' stock to dip $1.40, or 2.9 percent Tuesday, but it has rebounded a bit, closing up 44 cents Wednesday at $48.19.
In addition to ConocoPhillips' job cuts, oil field services company Schlumberger said it is eliminating about 20,000 jobs across the globe.
Alaska Gov. Bill Walker said he wants to ensure that ConocoPhillips looks to cut positions held by out-of-state workers before laying off Alaskans.
"I am planning on having conversations that involve the industry as a whole to address the ripple effects that will be caused by this decision," he said Wednesday.
ConocoPhillips relies on a network of Alaska and Outside subcontractors for much of its repair and construction work in the oil fields. Cuts to ConocoPhillips' workforce are very likely to cause even more job losses, and the types of jobs that will be lost have an outsized impact on the state's economy, according to Fried.
"As we have always said, these are the highest-paying jobs in our economy," Fried said. "These jobs are significantly bigger multipliers than any other industry."
Stiil, Fried said Alaska has seen oil and gas jobs disappear before.
"For example, in the 1990s, Arco (which later sold its Alaska assets to BP) cut 750 jobs -- BP cut 400 during the early '90s, when we had that long period of sub-$20 oil," Fried said.
Despite the big drop in oil prices over the past year, there were about only 100 fewer workers in the oil and gas sector, as of July, than there were in August 2014, which saw a record 15,300 workers. Big employment numbers in that sector will help ease the effects of the ConocoPhillips cuts, Fried said.
But in addition to falling oil prices and job cuts, the state is also facing steadily decreasing production of crude oil. Proponents of new oil taxes passed in 2013, including then-Gov. Sean Parnell, said production would increase under the new regime. Instead, Alaska crude oil production has continued to fall as oil fields age.
Walker said it's too soon to say whether the state's production tax system needs another change. Instead, Walker said, he will work to commercialize the state's vast natural gas reserves.
"I am in constant communication with North Slope producers to find ways to increase oil production," Walker wrote in an email on Wednesday. "Additionally, my gas team is working around the clock on ... negotiations in order to bring Alaska's natural gas to the global market. These layoffs underscore the need to develop Alaska's vast natural gas resources in order to offset cuts that are being made due to falling oil prices."
For Fried, the economist, the costs of recently announced job cuts, low oil prices and declining production will be decided by what happens long-term.
"The big question is how low will oil prices go and how long will they last?" Fried said.