Musings: Dog Days of Summer Bring a New Reality to the Oil Patch

In the most recent turmoil, the oil and gas companies seem to be leading the layoff parade. ConocoPhillips (COP-NYSE) has announced it will cut 10% of its worldwide employment – some 18,000 people – and that those cuts will impact about 500 members of the 3,753 employees in the Houston staff. Chevron Corp. (CVX-NYSE) plans to cut 1,500 jobs, with 950 coming from their Houston employment, and Royal Dutch Shell (RDS.A-NYSE) will eliminate 6,500 positions worldwide. Marathon Petroleum (MRO-NYSE), which had indicated that it would cut 350-400 employees earlier this year, just announced plans to cut another 40 from the company’s conventional oil search group as the company plans to focus on offshore, shale, and its MarkWest Energy (MWE-NYSE) acquisition.

A month ago, according to Swift Worldwide Resource, an employment firm, 176,000 oil and gas industry jobs have been eliminated in the past year. That would certainly include the estimated 65,000 jobs cut in the North Sea since employment peaked at the start of 2014, according to Oil & Gas UK. Not only are people losing their jobs but those who are unemployed are finding it difficult to find new jobs. The industry web site OilPro reported that the number of oil and gas job openings have dropped from 24,000 to 11,600 between November 2014 and July 2015. Along with the figures on job losses, there are reports that 50% of oil and gas contract workers have had their compensation reduced, in most cases by 10%, although depending upon the position, some employees have experienced cuts of 15% to 20%. These numbers are the unpleasant aspect of commodity downturns. Downturns force energy companies to seek new and more streamlined methods of operating in the future, and employees are a major cost factor. While the oil and gas industry has experienced a handful of downturns since the 1970s, this downturn seems to be the worst since the 1980s. How it reshapes participants and companies remains to be seen, but the recovery will take longer than expected and the scars will be deep.

The August issue of The Leading Edge, the journal of the Society of Exploration Geophysists (SEG), which is composed of workers in the seismic service industry and the exploration sector of the oil and gas industry, contained a column discussing the industry layoff experience. The author, who uses the name “Interpreter Sam,” recalled a presentation at the SEG 2010 Annual Meeting in Denver delivered by Kurt Marfurt, which Sam felt captured the essence of industry downturns. Mr. Marfurt said, “If you’re here, then you either survived 1986 or were born after 1986.” Sam reported that this comment elicited laughter from the audience, but it was nervous and uncomfortable laughter.

At the end of the column, Interpreter Sam offered his poem, “Layoff Fever,” based on John Masefield’s classic poem, “Sea Fever.”

“We must lay off some staff again, to cut our costs once more,
And all we ask is a legal scheme to show more staff the door;
Restructuring and outsourcing their ends did not quite meet,
And so to these means we revert to show more staff the street.

“We must lay off some staff again, for the call of the corporate board
Is a harsh, shrill, insistent call that cannot be ignored;
And all they ask is a world in which supply shortfalls demand,
And a strategy to find some oil in a friendly foreign land.

“We must lay off some staff again, it’s all we really know,
With prices low and forecasts dim we stay, but staff must go;
And all we want is a ranking list and a gleaming whetted blade,
And a cold eye and a steady hand as this round of cuts is made.

“We must lay off some staff again, and this won’t be the last,
We’re certain that the heady days of boom times are long past;
And all we ask of those who stay is to follow orders drawn,
All others, look not back here – once empowered, now you’re gone.”


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Philippe  |  September 27, 2015
I had proposed an article that in today’s climate is pertinent, below is an excerpt. Standard reservoir based project: The oil or natural gas reservoir is identified through 3D analysis. The wells are strategically located so the reservoir pressure is controlled and balanced. The level of heavies and water must be understood and controlled. The injection wells, to maintain the pressures over the production life of the reservoir, are located. The total number of wells may involve 10 or 20 or more wells depending of the size of the project. Once they are drilled, the rigs may do work over, that is the extent of the drilling. The infrastructure must be constructed, gathering and injection pipelines, separation stations, storage and export pipelines. In an offshore project the cost is many times more expensive, if only for the deep water installation. Fracking production Shale play using fracking technology is totally opposite. First there is no reservoir, just a geological mass that has been identified as containing oil and/or gas, including NGL. Each well will be fracked to liberate the crude, gas or NGL. At first, for the first 12 month, named Initial Production (IP) will be high. Over time the fracked mass will lose pressure and the rate of production called Estimated Ultimate Recovery (EUR) will become 50% or less than the IP production. When this happen, new wells are drilled and old EUR wells may be retired. The idea is to keep an average production by mixing the IP versus EUR wells. This requires constant drilling; if not the cost to maintain the infrastructure will be more expensive than what the EUR production can fetch. A 5 years EUR well will produce a trickle of an IP well. Drilling new IP wells may replace the production of 2 or 3 EUR wells. Retiring EUR wells may be cheaper, from a maintenance aspect then keeping it producing. Capital expenditure is key to have, over time a profitable shale play. We are, today, at the extended time when the IP production is declining. Meaning 12 to 18 month since the IP wells were drilled in 2014. The new drilling is the replacement of old IP with new IP wells. This means, US shale producers go out of business or stay producing with a limited capital investment.


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