Business/economics

Aker Solutions Joins Ranks of Service Companies To Reduce Capex and Workforce

Sandvik and SNC-Lavalin made similar announcements in late March and would take further action if necessary.

View of a price board showing oil and gas prices both down
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Aker Solutions became the latest oil and gas service company to reduce cost, capital spending, and its workforce amid the economic uncertainty. The company said its actions will mitigate the effects of the slowdown in activity triggered by the COVID-19 outbreak, adding revenues are expected to decline a minimum of 20% compared to its outlook at end of 2019.

In addition to already closing some locations temporarily, the company demobilized about 3,000 contractors in Norway and 700 non-Nordic contractors. It has also issued temporary layoffs for 400 employees in Norway and 250 employees in UK and submitted notice of potential need for temporary layoffs to up to 6,000 employees in Norway.

Aker Solutions said it was accelerating its cost-saving initiatives in key segments, including subsea, in order to address the overall cost base. The initiatives aim to reduce the company's fixed cost level by at least NOK 750 million ($72 million) on an annualized basis by

  • Consolidating subsea tree production to Brazil and Malaysia. This means the Tranby site outside Oslo, Norway, will no longer produce subsea trees after 2020 – effectively removing market capacity of about 60 subsea tree equivalents per year.
     
  • Reducing manning at the subsea plants in Port Klang (Malaysia) and Curitiba (Brazil) to strengthen the plant’s competitive position and adapt to the forecasted demand.
     
  • Initiating a program for substantial reduction of overhead personnel and costs across all regions.
     
  • Announcing early retirement initiatives.
     
  • Initiating a salary freeze and variable pay scheme for executives or general employees.

Aker’s investment level will be significantly reduced this year from its original plan of about NOK 750 million to about NOK 500 million.
Aker Solutions’ update comes after oil and gas service companies Sandvik and SNC-Lavlin took similar actions in late March.

Sandvik said it believes the direct impact on its financial performance in Q1 will be limited and it identified a need to mitigate future effects on its business from the spread of COVID-19.

The company’s temporary short-term actions are primarily related to reduced working hours, which it said will generate savings of about $150 million this year. Sandvik’s executive management reduced its salaries by 10%.

Most production units for the company continued operating, but government restrictions put production on hold in Italy, India, and partially in other regions. Its China operations are online and are approaching normal capacity. COVID-19 led to a 1-week closure of operations.

SNC-Lavalin said its 2020 financial outlook was no longer valid given the changing nature of the COVID-19 situation, and the impact on its worldwide operations. SNC-Lavalin president and CEO Ian Edwards said the company was actively managing the emerging impact on its business to minimize disruptions to its service delivery where possible, while taking actions on costs and cashflow to maximize their impact in Q2.

Its engineering services personnel continue servicing clients from non-office-based locations and transitioning work among different jurisdictions as required.

Discretionary expenditure not required to directly support client delivery is being significantly reduced, and capital expenditure frozen. Other actions include reduced hours and employee furloughs. The company’s executive leadership is taking a 20% reduction in salary while board members will take a 20% reduction in cash compensation for Q2.