ConocoPhillips’ merger with Marathon could lead to job cuts in Houston

The pending merger of ConocoPhillips and Marathon Oil, the latest deal in a series of big oil consolidations that are reducing the industry’s workforce and improving the companies’ bottom lines, could increase the layoff count in the Houston area.

Executives at 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. .

This is likely to bring a reduction in strength for West Houston-based oil companies as they eliminate areas of overlap.

“Anytime you talk about general and administrative cost reductions, that tends to refer to personnel and facilities, so you would expect us to lose some amount in the mix,” said Dan Pickering, chief investment officer at Pickering Energy Partners. “The deal itself is not a transformative combination for Conoco, but I think one of the things that makes the numbers work is a pretty big cost savings number, so I think we’ll see that impact in Houston.”

The wave of consolidation 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 personnel 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 wave of consolidation continues the trend.

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

North Eldridge-based Conoco said Thursday it has 2,100 employees in Houston. Marathon, which moved its corporate offices to West Houston’s CityCentre in 2021, had 774 employees in Houston in 2022. Marathon did not respond to requests for comment on its current local workforce.

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

Andrew O’Brien, senior vice president of strategy at Conoco, said Wednesday during a call with investors 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 essentially intersect in the field,” O’Brien said, noting that the company would “mobilize the workforce and combine that footprint” after the merger.

The biggest area of ​​impact is likely related to companies’ corporate offices, said Josh Young, chief investment officer at Houston equity investment firm Bison Interests.

“There will likely be significant workforce reductions,” Young said. “It’s difficult because the Houston office market is not doing very well.”

Houston has long been saddled with an oversupply of obsolete 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 will significantly affect the commercial real estate market in Houston depends on the workforce of the combined company. Together, the companies have about 1.5 million square feet of office space in west Houston.

“Administrative cost cuts often involve layoffs and location consolidation,” said Itziar Aguirre, director of market analysis at real estate data firm CoStar. “That said, both companies have single-occupant 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 into a new 15-story, 440,000-square-foot office tower in Midway’s CityCentre, a popular 50-acre mixed-use project in the southeast corner of the Interstate 10 and Beltway 8. .

At the time, Marathon said relocating its former headquarters to the Uptown-Galleria area would dramatically reduce costs and reduce employee commute times. 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 decisions at energy company offices in recent years. Several companies have moved west from Houston to be closer to their employee base, said Robert Kramp, vice president of research at real estate firm Transwestern.

“It’s about that concentration of talent,” Kramp said. The fact that Marathon employees are already accustomed to commuting west of Houston could help with the transition for those who remain. “They’re already there, so they’re just moving their garage badges from building to building.”

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

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