Chevron plans to downsize its global workforce by 15% to 20%
Chevron is grappling with a tough stretch, entangled in a legal battle with Exxon Mobil over its intended acquisition of oil producer Hess, which is integral to its growth plans in boosting oil production. Simultaneously, the company is grappling with thin margins in its refining segment, which endured a loss in the fourth quarter for the first time since 2020.
The company has signaled its intention to slash costs by $2-3 billion through 2026, utilizing technology, asset sales, and transforming work processes. This transformation results in a layoff scenario for 8,000 workers, or 20%, if the cut falls within the upper bracket.
Chevron's shares dropped 0.7% in afternoon trading in response to the announcement. The layoff-affected personnel can elect for buyout options from now until April or May, according to a confidential source. Chevron intends to reorganize its business and reveal a new organizational leadership chart within the upcoming two weeks.
Mark Nelson, Chevron's vice chairman, stated, "Chevron is set on streamlining our organizational structure, executing efforts more swiftly, and positioning the company for enhanced long-term competitiveness. We do not undertake such actions lightly and are committed to supporting all employees during this transition."
Chevron's layoffs and reorganization initiatives are primarily fueled by multiple strategic and monetary reasons:
- Cost Reduction Strategy: Chevron is determined to realize an estimated $2-3 billion in cost savings by 2026 through technology improvements, asset sales, and optimized work processes.
- Operational Efficiency: Chevron wishes to streamline its operations and refine its organizational structure for long-term competitiveness.
- Market Challenges: Weak refining margins have resulted in a loss of $248 million within the fuel business for the 2024 fiscal year – a contrast to a profit of $1.15 billion in the preceding year.
- Legal Hurdles: Chevron's $53 billion Hess Corp. acquisition is facing delays due to arbitration with competitor ExxonMobil, influencing its restructuring efforts.
Although investor sentiment has been somewhat negatively impacted due to the layoffs, analysts maintain a Strong Buy consensus rating on CVX stock, with a $177 per share average price target, implying a 13.2% upside potential.
Chevron is implementing a cost reduction strategy, aiming to save $2-3 billion by 2026 through technology, asset sales, and improved work processes, as part of its business reorganization. The company's refining segment has been facing thin margins, leading to a loss in the fourth quarter for the first time since 2020, thereby necessitating these measures.
