MUSKOGEE, Okla. — Steep drops in crude oil prices with accompanying production cuts and the COVID-19 pandemic prompted the immediate implementation of cost reductions at Vallourec, which plans to reduce its North American workforce by at least a third.
The move was announced Monday during Vallourec's combined shareholder's meeting. During the meeting, Management Board Chairman Édouard Guinotte laid out a strategic roadmap for a "leaner and more competitive company."
That roadmap redirects the focus of Vallourec, which produces seamless steel pipe for the oil and gas industry, to locations outside North America. Uncertainty in the North American oil and gas industry since Feb. 19 due to COVID-19 and failure of OPEC and Russia to agree on production caps prompted Vallourec's decision to implement "all necessary adaptation measures" and accelerate "its costs savings plan."
“The world and the oil and gas industry are living through extraordinary times, particularly in the U.S.," Guinotte said in a media release following the meeting. "The decisions announced today are necessary in a quickly deteriorating environment but preserve our ability to serve our customers efficiently."
Multiple attempts to contact officials at the Muskogee plant to assess the local impact of this decision were unsuccessful.
Guinotte said after all possible alternatives were reviewed, the final decisions "were not made lightly." He said those decisions "will be implemented in the full respect of Vallourec values.”
The reduction in force is expected to affect more than 900 positions, which represents more than a third of the company's total workforce and contractor positions. A media release confirmed the implementation of these measures will affect all of Vallourec's North American plants and support functions.
In a notice required to be filed with the state of Ohio and mayor of Youngstown, Ohio, as a part of the Worker Adjustment and Retraining Act, Garrett Francis, president of VAM USA, LLC, said demand for Vallourec's products has dropped due to "unprecedented issues."
"Due to the unprecedented issues caused by the COVID-19 pandemic and the OPEC-Russia oil price war, the company is unable to give 60 days notice of the layoff and is giving notice at the earliest practicable time," Francis states in the WARN notice advising of layoffs at the company's Youngstown facility. "These unforeseeable business circumstances include the unanticipated and dramatic drop in oil prices and the major downturn in the U.S. economy."
Francis described the fallout from those circumstances as "a substantial decline in the demand for the company's products and services and a significant reduction in its incoming receivables and cash flow." He said the combination of those factors put "the company in the difficult position of having to reduce its workforce."
Vallourec's plant at the Port of Muskogee sustained several setbacks during the past few years. A fire in 2012 consumed part of the facility and some equipment and caused more than $6 million damage.
An $11.8 million expansion project, supplemented by a $2 million community development block grant through the Oklahoma Department of Commerce, was completed in 2014, but a downturn in the oil and gas industry the following year prompted a string of layoffs. The company began to ramp up employment again in 2017, when the Muskogee City-County Port Authority approved a $455,000 incentives package which required Vallourec "to maintain any jobs being considered for payment for 36 months prior to submitting a formal request for funds."
Marie Synar, director of the port authority's industrial development division, said Vallourec became eligible in February for payments from the 2017 incentives package but never made a formal request for funds. Since no funds were distributed, Synar said she expected the grant commitment to the port authority made by the City of Muskogee Foundation will be written off at the foundation directors' next meeting.