As FDO goes to press, the energy sector slump continues due to plummeting oil prices. And that’s not good news for safety distributor and PPE sales, which tend to mirror headcount levels. One piece of good news for distributors: headcount and the resulting demand for PPE is on the upswing in the U.S. non-residential construction sector. Infrastructure projects – rebuilding bridges and highways for example – abound.
The cycle plays out
Since oil prices began a deep dive a year ago, crude production in the U.S. has held up relatively well—even as once booming parts of the country have seen a sharp pullback in investment and new drilling. Since peaking late last year, the number of rigs in use has been cut in half, prompting many oil and exploration companies to lay off many of the workers hired during the energy boom that followed the Great Recession.
Between January 2011 and the end of last year, the U.S. roughly added 170,000 new natural resources and mining jobs, according to ADP. But since the start of the year, roughly 76,000 of those jobs were eliminated, according to the firm.
That trend is likely to continue, unless oil prices stage a surprise recovery. Industry analysts say that isn’t likely as long as global crude producers continue to pump at current levels and surplus oil supplies continue to build.
Production managers in the oil patch say they’ve reduced hiring and expect to continue to do so, according to a survey of hiring managers by Rigzone, an energy industry news and information site. Roughly half of those surveyed said they have cut back on hiring in the last three months and another 13 percent said they had frozen staffing levels. Some 65 percent said they’ve cut back on hiring plans for the next six months, according to Rigzone.
Slowing wage growth
Pay packages for exploration and production workers are still big by most measures, but they are no longer booming, according to a new report. After steadily rising on the back of America’s shale oil and gas revolution, wage growth has slowed considerably in the face of a year-long commodity collapse.
Base salaries were up 1 percent across the board for engineering, geosciences and land skill jobs, Dallas-based search and staffing agency CSI Recruiting concluded in its 2015 E&P Salary Report. Last year, base salaries rose 5 percent.
The depth and length of the downturn has reduced demand for even the most highly sought oil patch professionals. CSI notes that what it never thought would transpire has happened: Reservoir engineers have gone months without employment.
Reservoir engineers are responsible for estimating the hydrocarbon content of an oil or gas reservoir and forecasting the future production of those assets. Those skills are just as important, if not more so, during a downturn as they are during boom times.
Veterans are punching out
The current downturn could force the long-anticipated departure of experienced workers who first entered the industry in the late ‘70s and early ‘80s – a potential problem because the industry has too few mid-level workers. Petroleum engineering enrollment declined during the 1980s oil bust.
Many of the industry’s most experienced workers are retiring or taking buyouts. With several years of additional pay in the bank after the 2008 downturn, and their stock portfolios made whole thanks to a six-year bull market, those veterans are confident enough to punch out for good, Bush said.
Layoffs at oil-related enterprises sent overall job cuts in January soaring 40 percent from the previous month, to a nearly two-year high, Challenger, Gray & Christmas reported. The firm attributed 21,322 layoffs last month to falling crude prices, compared with 14,262 total cuts in 2014.
The downturn among contract workers is the first wave of headcount reductions. As producers terminate contracts or allow them to expire, the next step is usually cuts in other personnel areas.
Oilfield services companies have announced layoffs of thousands of workers. Those businesses are first to cut because they are dependent on contracts with exploration and production companies, many of which are scaling back operations and can no longer tap the high-yield debt that fueled their growth.
The industry is consolidating
With crude prices nearly 60 percent off their highs, experts foresee a wave of corporate restructuring and acquisitions playing out over the next 12 to 18 months, with oilfield services companies gobbling up smaller firms.
Restructuring will come not just in the form of layoffs and cost cutting, but in capital restructurings in possible bankruptcy court cases, according to experts.
U.S. oil production grew 49 percent between 2008 and 2013, as drillers improved productivity and tapped high-yield debt markets. But with their product fetching far less these days, exploration and production companies have slashed capital expenditure budgets and are being pickier about where they plumb for oil.
At current price levels, firms could take as many as 650 onshore rigs offline—or about one-third of the nearly 1,900 that were drilling at last year’s peak in November, Wells Fargo analyst David Tameron told CNBC.
Drillers have begun reducing rigs in big shale regions, including the Permian Basin in Texas and New Mexico, the country’s highest-producing region, as well as North Dakota’s Bakken Shale and the Eagle Ford in south and east Texas. But shutdowns in other, less productive and emerging areas will likely be more widespread.