Kemp: Mass Layoffs Complicate Oil Industry's Long-Term Plans



Kemp: Mass Layoffs Complicate Oil Industry's Long-Term Plans
The challenge is recruiting, training and retaining workers and maintaining an appropriate long-term labor force in an industry stuck with a profound boom-bust cycle, analyst John Kemp says.

Reuters

John Kemp is a Reuters market analyst. The views expressed are his own

LONDON, Feb 13 (Reuters) - "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."

Human Capital

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 labour. 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 specialised 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 labour 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.

Graduate Recruits

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 specialise in petroleum engineering and related disciplines.

Petroleum engineering departments hired extra instructors and increased enrolments. According to the U.S. Department of Education, the number of students enrolled in petroleum engineering programmes at U.S. universities increased from a recent low of just 561 in 1997 to 1,301 in 2011 (http://link.reuters.com/tux93w).

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.

(Editing by Andrew Heavens)



WHAT DO YOU THINK?


Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

Miles  |  February 18, 2015
I would like to see the CEOs and all of their top executives at BH and HAL and also SLB to take a serious pay cut and forfeit all bonuses! What they get paid in one day took me a month or more to make. I argued for years as a oilfield worker that we need to pay into a downturn fund for all field operations employees so that we can survive low oil prices, but executives wouldnt listen! You CEOs dont have to worry, you and the board of directors get on the companys private G5 jet and fly home.
Loren Reagan  |  February 16, 2015
Even tho many of the issues related to this article are accurate many are not, Haliburton and Baker Hughes were a given to lay off many workers or employees as they combine there companies there are many employees that would be doubled up, for the ones that were not doubled up it is likely they were just filling a spot, we talk about many trained personal, for the most part the industry has attempted to do this, for the most part the have failed, I recently spent a 1 year contract in the kingdom, both rigs that I was a foreman on had less than 15% experienced personal, most had less than 6 months experience and even the smallest task takes forever or they just dont feel the urgency of the situation, its not the oil companies fault that there is a turn down in the industry, have a look at what the real issue is, does greed sound familiar, if oil companies have work and cant wait to recover the oil and gas so be it, does this mean that the contractors should run out and build more equipment and hire more people, part of the issue of the costs today is just that, inexperienced people take twice or three times as long to complete a simple task, Wells that were being drilled 5 years ago in north America to a depth of 10000 take twice as long today, wells in the middle east are being drilled like north America was in the late 70s, does anybody listen or want to change, no, as soon as you get back to the basic drilling 101 program and there is a improvement in performance or well bore conditions everyone gets there back up because they didnt or couldnt do it, companies like Haliburton and Baker, Schulumberger all call themselves "PERFORMANCE DRILLING SERVICES", this is so far from the truth and here in lies the problem, sit down with them and ask them what there performance mandate is and then ask what the costs of these services are, ask them what there average age of employee is and there experience, then sit back and ask yourself, would you want a health care system to manage your heart surgery if this was the experience that the doctors have. I have 35 + years experience in the industry and 15 of those being performance minded owning my own business, I dont understand why the simple facts of the industry always get clouded when the issues have been going on for decades, with little effort the industry could save millions of dollars by paying attention to the small issues of drilling a hole in the ground, al they have to do is pay a bit of attention.
Mark Easley  |  February 14, 2015
The only way we will fix this problem is STOP building new rigs, or at least lay down a older rig when a new one is brought out.
Mark  |  February 13, 2015
I graduated from Colorado School of Mines in 1991. When I was hired in October of 1990 (during the first gulf war), oil was about $40/barrel, By the time I started work it was down to $14/barrel. After working for 2 months, my boss came in and said theyre laying off 25% of folks. A year later, most of us were laid off and two years later the oil field was sold. ARCO doesnt even exist anymore, other than gas stations in California. I went back to grad school and got a masters in Civil Engineering. Working in the oil patch makes sense if you are planning to go over seas and bank it all away. Its a profession of feast or famine. Folks need to know that before they choose what to study. Ive met many geologists and geophysicists that have re-tooled themselves into programers. The oil patch is not for the faint of heart. It takes a gambling spirit ride that profession... and good timing. I still treasure the time I spent up there in Wyoming. It taught me that all that glitters isnt black gold or Texas Tea... and that family is more important than money.