Navigating the Oil, Gas Cycles

Navigating the Oil, Gas Cycles
History has shown that just as a downturn is a natural part of this cyclical business, so is survival – for both companies and the people that drive them toward success.

As the energy industry watched oil prices begin their dramatic descent last fall, the reactions were varied. Everyone was jarred by how prices fell so far, so quickly. Many veteran executives warily pulled out the playbooks from previous downturns, while younger employees did their best to quickly step up and assist companies with executing game plans. As a high-risk, high-reward industry subject to commodity price volatility, supply and demand, and politics around the world, it’s simply not for the faint of heart. But history has shown that just as a downturn is a natural part of this cyclical business, so is survival – for both companies and the people that drive them toward success. 

Historically, this current story actually begins about two decades ago with the evolution of advanced technologies such as hydraulic fracturing and horizontal drilling. As these kinds of innovations expanded, they paved the way for the shale revolution in North America: a bright spot that helped pull the U.S. economy out of the 2008 recession.

Paula Waggoner-Aguilar
Paula Waggoner-Aguilar
Paula Waggoner-Aguilar, President, The Energy CFO, LLC

“But today we have a situation of weak crude demand while crude supply has surged in the United States,” said Paula Waggoner-Aguilar, president at The Energy CFO, LLC. “This adds to the complexity of the ‘petro politics’ and geopolitics in play. It’s also created a storage glut. Meanwhile, a market-share turf war is going on with OPEC (Organization of the Petroleum Exporting Countries) and the U.S. government still has a crude export ban in place. All of these factors have played out in falling crude commodity prices.”

As companies sought to cut costs in late 2014, layoffs were made, and announcements about personnel cuts continued to roll out during early 2015. Executives that have been in this business for a while know the defensive drill: it’s about conserving cash, reducing CAPEX, lowering activity and reducing costs, Waggoner-Aguilar said.

“The unknowns include how low prices will go and how long the downturn lasts, and the immediate response was belt-tightening. However ... [going forward] I expect to see more strategic analysis regarding the second half of 2015 and 2016.”

Earlier downturns, particularly in the 1980s, saw several oil and gas companies struggle to come to grips with what was happening with commodity prices, so there could have been some “knee jerk” layoffs happening back then, said Doug de la Morena, vice president of human resources at Parker Drilling. “But as an industry, I think we’ve gotten smarter and more purposeful about managing through downturns. There have been quite a few announcements during the last few months about personnel reductions, but my sense is that the process is a lot more thoughtful this time around. Companies know they need to retain good employees now and attract good candidates in the future.”

Various age groups have reacted to the market volatility slightly differently, Waggoner-Aguilar said. Millennials may have more of a “the sky is falling” view due to their limited industry experience. Some are now exploring international opportunities, and some are looking at entrepreneurial options or start-up energy projects, but generally speaking, they’re not leaving energy. As for Gen-Xers, some of the entrepreneurs in this group left while the going was still good, but those that stayed are hunkered down and know the drill, Waggoner-Aguilar added.

“When we look at the Boomers, we see more are retiring. They represent a wealth of knowledge so some are electing to become consultants. Some are hunkering down and some are open to all industries. However, none of the people in these groups are sitting on the sidelines not doing anything.”

Stefanie Hanz
Stefanie Hanz
Stefanie Hanz, Talent & Recruitment Manager, Newalta

The industry’s future is dependent on advancing technology and reducing the price of finding and extracting hydrocarbons from the ground. If it can do those things it will continue to be a viable industry for many decades to come. That said, younger employees and STEM students are in a great position to lead the oil and gas industry forward during the next few decades.

“The oil and gas industry needs science and math wizards. Our industry wants them, is willing to pay a premium for them, and will continue to make finding and developing new talent a priority,” said de la Morena.

Employees that have been in the industry for 20 to 25 years understand the ups and downs of our business.

“Those people are probably going to hang tight because our industry is an attractive one; it’s challenging, growing and it’s exciting,” he added. “Employees earlier in their career or ones that came over from another industry may be surprised by where we are. For the short-term, these folks may migrate to another industry. However, I believe the demand curve for talented people who are willing to travel and take on exciting new challenges will drive their return to our industry eventually.”

Bouncing Back

For those who have lost jobs during this downturn, it’s key to remember there is nothing personal in what’s happening, and companies do not take any pleasure in letting people go. This situation is temporary. Keep your skills up; learn as much as you can about how companies are planning to move forward, and make finding a job your 40-hour per week job, said de la Morena.

Next, know that there are still openings available, and hiring is still happening. Top talent is always in demand. And, even in the process of reducing headcount, companies still want the best talent on their teams: high producing people who work efficiently and cost effectively.

“There are a variety of roles being recruited for as business and operations are continuing,” said Stefanie Hanz, Talent & Recruitment manager at Newalta. “It may not be with the same velocity, but I’m seeing opportunities in all areas of corporate business and field operations, just at a reduced volume. Even in a downturn there are roles within oilfield services that continue to have employee turnover or additional staffing requirements to service projects. On the operations side is where we will see more frequent hiring.”

Most companies and employees are probably carefully evaluating their positions, value and prospects, but the industry has to keep moving forward, said de la Morena. As a drilling, drilling services and rental tools company, Parker Drilling helps customers search for hydrocarbons around the world in increasingly remote and harsh environments using technology that continues to evolve. The company can’t do that successfully without good talent.

Doug de la Morena
Doug de la Morena
Doug de la Morena, Vice President of Human Resources, Parker Drilling

“We’re an operational execution company focused on helping our customers manage their costs and mitigate their risks by consistently delivering innovative, reliable and efficient performance, products and services. To do this, we’re always going to need dedicated, passionate energy professionals – engineers, geologists, tech specialists and talent managers – to fill full-time needs as well as rotational positions around the globe. We will also always need compliance and safety specialists. All of these roles are in demand today, but we expect that demand to increase significantly in a few quarters.”

After realizing that there are still jobs to be had, it’s time to take action. Start by taking advantage of your network, as it’s how you might discover opportunities that aren’t necessarily being marketed yet.

“Quality networking should be engaging and about creating mutually beneficial relationships,” Hanz said. “How can you help others get to where they want to be? How can you share relevant, high-quality information with your network or offer to introduce them to additional relevant connections? Putting in the effort to meet with people in-person also goes a long way.”

“These approaches are much more effective than asking for a business card and a job in the same sentence. Remember, it’s not about the number of connections you have within a social network. It’s about the level of engagement and the quality of the relationships that you’re forming.”

Hanz also recommended several additional steps in the job search process:

  • Tailor your application and resume to the role you’re applying for
  • Be clear in your career aspirations within the role and with the company specifically
  • Be able to articulate how a particular opportunity fits in with your long-term career goals
  • Do your research about the company’s revenue streams, team and hiring managers
  • Focus on what success looks like in the role and identify what you bring to the table that can help lead to that success

“As for don’ts, a candidate shouldn’t treat current opportunities as just a way to get into the company, when they are actually eyeing a different role or another type of organization. You should be genuinely interested in the current opportunity that you are pursuing as it will come across in your interview and quickly upon starting within the new position. Also, be honest in your interview examples; the work experience you describe should always be your own,” Hanz said.

While you’re looking, volunteer in the interim, Waggoner-Aguilar added.

“With all of the effort in finding a new job and anxiety about what’s happening in the market, volunteering can make you feel good and improve your mental health. Consider opportunities with industry organizations, or engineering or entrepreneurship departments at a local university. You never know who you’ll meet and it will improve your spirit.”

Once you land an opportunity, start the new job ready to learn. Ask lots of questions and go into discovery mode. Learn about other people, their roles and what is important for them to accomplish to drive business results. Understand how your role relates to theirs and how it impacts what the business is trying to accomplish. Identify key contacts within the company and seek to understand how you can provide value to others, Hanz advised. By setting oneself up to make a real impact within the first couple of months of starting in a new role, you’ll establish yourself as a valued contributor. Also, seek projects that you can offer your assistance on that will help you develop skills, relationships with colleagues and new insights into the business.

It also doesn’t hurt to maintain an emergency savings in good times and tough times. Always keep your resume current so if your employment status changes you can hit the ground running. If you were not directly impacted by the layoffs, it’s very important to maintain a positive attitude at work, Waggoner-Aguilar said. Roll up your sleeves and jump in where there’s additional work to be done.

Meanwhile, current employees should step up and let supervisors know about their interest in learning new things, taking on new roles or a willingness to work in other locations, said de la Morena.  

“Taking on new challenges puts people in a position to help their companies and advance their career development. And people – whether employed or not – should keep up their competencies, job skills, networking and business acumen. They need to be in the know about what’s happening in our industry. They should be very conversant in the language of finance and energy in order to be well positioned for that next opportunity.”

Finally, remember to lend a helping hand and don’t forget to pay it forward, Waggoner-Aguilar said.

“If you know people who were directly impacted by the layoffs, offer to make introductions that could lead to their next opportunity. Offer to walk their resume to a hiring manager. It doesn’t guarantee the job, but it improves their chances for being considered.”

Company Outlook

Just as people are evaluating the best strategies for moving forward, companies must do the same. Waggoner-Aguilar noted that for exploration and production (E&P) companies, their survival playbook is about conserving cash, shortening the cash conversion cycle, using tools such as cash flow forecasting and adopting rolling forecasts.

“It’s also about maintaining a strong balance sheet, which includes cutting capex and delaying major projects as necessary. You don’t want to accelerate production in a low price environment, but you want to make sure that the drilling that is going forward is in the best rocks in the best plays.”

To cut costs, many E&P companies are renegotiating contracts with oilfield-service companies. If the company is vertically integrated and providing their own services they should look internally for ways to reduce those costs and benchmark their margins versus the most competitive external competitors to determine how competitive their services are, Waggoner-Aguilar said. Boosting operational efficiencies, integrating digital oilfield technologies and eliminating additional unnecessary costs as appropriate are also helpful in reigning in expenses.

“All of these steps help E&P companies have cash available as opportunities arise during the downturn. It’s a great period to be on the lookout for new drilling acreage that can be added to the portfolio.”

During a downturn, oilfield-service revenues decrease, rig counts drop and yards become full of equipment. Service companies also find themselves under a lot of pressure from E&P customers to lower prices. Debt downgrades in the public and private sectors can happen as a result, and access to capital tends to be restricted.

“The oilfield-service companies that will survive this are going to be great negotiators with the most favorable term sheets, and they will have good margins,” Waggoner-Aguilar said. “They will run efficiently and they are taking advantage of technology to automate certain processes. The oilfield-service survival playbook is about conserving cash, maintaining a strong balance sheet, reducing costs, getting utilization up for the business that they do have – and possibly pivoting into untapped markets downstream – focusing on procurement and improving inventory systems.”

Fundamentally, no matter the size of the company or whether it’s an E&P or a service-focused entity, to execute successfully in a down market a company needs cash, a strong balance sheet and a dynamic financial plan.

“Things can change a lot in 30 days within a market like this so companies need to be able to have current information available to help them make timely decisions. They need external financial experts if they don’t have them in-house. Having experts available on the technical and operational sides are also critical. All of these experts can really help companies get a leg up right now.”

While it’s crucial for companies to have financial plans that are sustainable in the current environment, it’s just as important for companies to continue to value the people that drive the business. This means always treating talent with respect and compassion.

“Employees across the industry are going to have a lot of choices when the market recovers and there are more job openings,” said de la Morena. “Employers need to value people, and develop and retain them as much as we can. How you treat folks that may leave your company now and how you deal with remaining employees says a lot about the kind of company you are. We’ve been very careful about this as we’ve worked to balance our business footprint with the real-time demands of the industry.”

It’s important to treat people with dignity, especially during mass layoffs, Waggoner-Aguilar added.

“Executing these decisions is difficult for all parties – even more so for individuals that have been terminated. Demonstrating compassion during the process helps employees retain confidence and can let them move past being angry or disappointed quickly. This can create a better frame of mind for focusing on finding that new job.”

From an employer perspective, a company always wants to make optimizing talent a top priority, said de la Morena. The human resources department’s job is to figure out what the short- and long-term talent needs are; find the talent – both when it’s needed immediately and when it isn’t; develop the talent through tools such as e-learning and rotational programs; and then retain the people the company has invested in, he said.

“At Parker Drilling we try to manage our workforce and talent pretty similarly in upturns and downturns. As an industry we’ve learned not to panic when commodity prices begin to drop. At Parker, we are being a lot more careful about protecting that investment in our people. As an industry we are wiser, more thoughtful, and we value employees.

“Talented, dedicated professionals will be increasingly difficult to come by in the future. We have to develop and support our team members to ensure we have the right people in place to help our customers achieve their objectives, not only as we navigate this downturn, but as market conditions improve.” 



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