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Chevron Cuts Houston Headcount by 655 Amid Low Oil Prices

Chevron CorporationCVX, one of the largest integrated energy companies in the world, announced that it is reducing its workforce by 655 in the Houston region amid low oil prices. This is in sync with the company’s late last year’s announcement of a significant headcount reduction plan from its upstream business.

This year, the company plans to cut 4,000 jobs, which is higher than last year’s 3,000 headcount reduction. This is quite alarming as the total 7,000 jobs cut comes to almost 10% of 2014’s total work force. Investors should know that this year’s workforce reduction program is part of Chevron’s 24% capital expenditure reduction program for 2016.

Persistent low oil price for a length of time is primarily behind this massive layoff. This is because the upstream and the integrated energy players are not being able to sell crude at attractive prices and are hence not generating significant cash flows for their shareholders. As a result, generating more profits by reducing operating expenses is one of the most common methods being followed by Chevron and the other major energy players like Royal Dutch Shell plc RDS.A, BP plc BP and Schlumberger Limited SLB.

San Ramon, CA-based Chevron has an impressive business model. Its current oil and gas development project pipeline is among the best in the industry, boasting large, multi-year projects. Additionally, Chevron possesses one of the healthiest balance sheets among its peers, which helps it to capitalize on investment opportunities with the option to make strategic acquisitions.

However, the ongoing oil price slump has adversely affected the group’s earnings and cash flows, particularly at its upstream unit.

As a result, the company currently carries a Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months.

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