An oil well pump jack is seen at an oil field supply yard near Denver, Colorado, US on Feb. 2, 2015. (Reuters Photo/Rick Wilking)
Commentary: Mass Layoffs Complicate Oil Industry’s Long-Term Plans
BY :JOHN KEMP
FEBRUARY 14, 2015
London. “This is the really crappy part of the job, and this is what I hate about this industry frankly,” the chief executive of oilfield services company Baker Hughes complained as he announced it would lay off 7,000 employees.
Baker Hughes is cutting jobs in response to slumping prices and a downturn in drilling activity.
But the company’s obviously frustrated chief acknowledged that “this is the industry, and it’s throwing us another one of these downturns, and we’re going to be good stewards of our business and do the right thing.”
So the company will cuts costs, he told investors in a conference call on January 20 to discuss the firm’s fourth-quarter earnings and outlook for 2015.
More than 100,000 layoffs have been announced across the industry worldwide since prices began to slide last summer, according to a tally kept by Bloomberg.
In recent weeks other major service companies have announced job reductions. Halliburton announced it will cut 6,400 jobs (8 percent of its global workforce) while Schlumberger will eliminate 9,000 positions (around 7 percent of its workforce).
Precision Drilling, one of the largest rig contractors in North America, has idled more than 50 of the 250 rigs it had working this time last year, leaving more than 1,000 skilled operators out of work, the company said on Thursday.
“Industry downturns are difficult for all, but they affect our rig crews more than anybody else,” the company’s chief executive said in a statement.
“Precision recruited, trained and developed many excellent crews to support the demands of our customers over the past several years, and unfortunately we now don’t have work for many of these dedicated workers.”
Tens of thousands more jobs have been cut, through layoffs or retirements, across every part of the industry, ranging from self-employed drilling contractors and well-completion crews to full-service companies, seismic surveyors and of course the oil and gas producers themselves.
Oil and gas production is an exceptionally capital-intensive industry. But the sector’s most important and scarce resource is its workforce.
The oil industry’s popular image may be a roughneck in soiled overalls drinking in a strip joint, but it has an enormous demand for highly skilled and, during a boom, very well compensated workers.
Modern oil and gas production is technically complicated and dangerous work. The days of drilling wildcat wells more or less at random and allowing the well to blow out in a massive gusher are long over.
The industry still provides employment for unskilled casual labor. In boom times some of the jobs for truck drivers and other support staff can be exceptionally well paid.
But at its core are tens of thousands of petroleum engineers and petroleum geoscientists, as well as tool pushers, drillers, derrickmen and roughnecks on the rigs themselves, who perform specialized functions which demand years of formal education and, most importantly, experience in the field.
The challenge is recruiting, training and retaining these workers and maintaining an appropriate long-term labor force profile in an industry stuck with a profound boom-bust cycle and beset by periodic mass layoffs.
The great crew change
Until recently, the oil industry was preoccupied by a looming shortage of skilled workers -- especially mid-career professionals ready to step into supervisory and senior leadership roles.
Schlumberger’s consulting arm, which offers human resources planning advice to third parties, has warned repeatedly about “the looming talent shortage” as a result of what it termed “the great crew change”.
Oil and gas companies have lots of experienced workers in their late 40s and 50s, and have recently succeeded in attracting more young graduates. But there is an acute shortage of mid-career professionals aged 35-45, with 10-20 years training and experience.
The large number of professionals in their 50s poses a major problem as they reach the age for retirement, while recent graduates are still 10-15 years away from being ready to assume supervisory positions.
The industry’s uneven age profile is the legacy of the last downturn during the late 1980s and through the 1990s, when low oil prices and the squeeze on profits resulted in enormous job losses and a virtual freeze on hiring.
As a result, the cohort of workers recruited in the mid and late 1990s, who should be moving into supervisory and eventually leadership positions, is unusually small.
Back in 2013, Schlumberger predicted the oil and gas industry would have a shortage of around 15,000 experienced petroleum engineers and geoscientists by 2016.
The predicted shortfall of experienced petro-technical professionals (PTPs) would approach 20 percent of the total required number.
The looming shortage was seen by many as the biggest single threat to increasing oil and gas supplies in the second half of the current decade and into the 2020s.
Schlumberger forecast the industry would need to hire 10,000 new petro-technical professionals every year through 2020 to offset retirements and meet the need for expansion.
The oil industry spent years working to encourage more college students to specialize in petroleum engineering and related disciplines.
Petroleum engineering departments hired extra instructors and increased enrollments. According to the US Department of Education, the number of students enrolled in petroleum engineering programs at US universities increased from a recent low of just 561 in 1997 to 1,301 in 2011.
Now, of course, the downturn has thrown thousands of oil and gas professionals out of work, and led to pay freezes and cuts in contracting rates.
Amid all the headlines about layoffs, falling salaries and a potentially prolonged downturn in oil prices, the industry somehow has to avoid losing current graduates to other sectors and continue encouraging high school students that oil and gas engineering and science is an attractive long-term career.
Because if the oil industry cannot maintain an adequate skill base, with the right age structure, skill shortages will re-emerge and set the stage for the next brutal boom-bust cycle.
In practice, the industry has never succeeded in balancing long-term personnel planning with the short-term financial imperative to control the wage bill.
It may not be any more successful this time around, if the slump in oil prices and drilling continues long enough.
And that’s why the chief executive of Baker Hughes could say truthfully mass lay-offs are what he and everyone else “hates” most about the oil and gas industry.
John Kemp is a Reuters market analyst. The views expressed are his own.