Chesapeake Cuts Jobs Back to Blog
Its funny, well, not really, how business organizations make long term decisions about their economic strategies which, in reality, fly in the face of historical evidence. Take Chesapeake for example. Having already laid off 1200 employees, they now comment that as many as 2000 more be gone by the end of the company’s restructuring efforts. These laid off employees are prohibited to talk about it as doing so would affect their severance packages. The company line is that “Chesapeake is transitioning key leadership positions and making adjustments to its organization to properly align resources, reducing expenses (emphasis added) and improving its operating and competitive performance.”
You only have to go back a short five years to remember Chesapeake’s almost military approach to leasing natural gas shale plays, drilling natural gas wells on a fast tract basis and creating a company atmosphere where employees were expected to devote their lives to the company’s goals and to worship the workplace. Their business plan which foresaw no significant future drop in natural gas commodity prices was slow to realize what was happening. Chesapeake forgot or ignored the historical cycle of natural gas prices that always occur. First, low commodity prices will result in low drilling rates and low production. Second, the low drilling rates coupled with the lower production will ultimately result in higher prices. Third, the higher prices will result in more drilling. Higher drilling rates will cause a surplus of production ultimately bringing commodity prices back down…..and the dance starts anew. Did Chesapeake put too many of their marbles in the natural gas bag and should their previous Chairman have balanced their portfolio with crude oil or liquid reserves? Probably. They seem to be one the few alleged successful oil and gas companies currently laying off employees in a big way……