The U.S. Has Already Lost More Than 100,000 Oil And Gas Jobs

Oil and natural gas exploration -- geology and geophysics
Post Reply
User avatar
Newsman
VIP Member
VIP Member
Posts: 701
Joined: Sun Jul 26, 2009 5:04 pm

The U.S. Has Already Lost More Than 100,000 Oil And Gas Jobs

Post by Newsman »

The US oil and gas labor market is amongst the world’s most severely hit by the downturn that the Covid-19 pandemic has brought, a Rystad Energy analysis of the latest data from the US Bureau of Labor Statistics (US BLS) reveals. More than 100,000 oil and gas jobs have already been lost in total, with most of them coming from the support activities market. The data shows that the four oil and gas segments most affected are support activities for oil and gas operations (44,550 jobs cut from a pre-Covid-19 level of 233,550), pipeline and gas and related construction (16,000 jobs cut from 227,000), drilling of oil and gas wells (13,450 jobs cut from 79,450) and oil and gas extraction (9,600 jobs cut from 156,600).

In addition to the above four segments from the US BLS, Rystad Energy has included more components of the oil and gas industry chain, thus independently estimating the total job cuts to exceed 100,000 to date. The support activities segment in particular reveals a staggering employment slump of 20% compared to February’s pre-Covid-19 levels.

“The job cuts can be attributed mainly to the nosediving oil prices driven by a sharp contraction in domestic oil demand, which has resulted in an unprecedented demand-supply imbalance. In response to the weakened demand, operators and service providers alike have been frantically cutting jobs,“ says Rystad Energy’s Vice President Energy Service Research Matthew Fitzsimmons.

https://oilprice.com/Energy/Energy-Gene ... -Jobs.html

GuyM
VIP Member
VIP Member
Posts: 625
Joined: Sat Mar 24, 2012 11:35 pm

Re: The U.S. Has Already Lost More Than 100,000 Oil And Gas Jobs

Post by GuyM »

There's a desperate need for oil companies to cut costs, especially those that have significant debt obligations. The reduction in cashflow is a real problem when those debt payments come up, and the US oil industry has done well out of cheap borrowing.

There's wider concerns out their too. A lot of oil industry debt is in the form of bonds. The risk involved with these bonds is mitigated by "slicing" them up and packaging them with other, less risky debt. These packages (called CLOs - collateralised loan obligations) can then be bought, sold traded and so on. You can even take out insurance that they won't pay out as a "swap option"

Now if you have watched the movie "The Big Short"this might ring some bells (and do watch that movie; now is a good time)

In the "Big Short" it is CDOs - collaterlised debt options - that are the focus, and the credit default swaps for those. Those CDOs were a way of packaging up sub-prime mortgage debt in the US, which is what lead us into the whole Global Financial Crisis.

So a fair chunk of the sub-prime corporate debt out there is in the in the US unconventional oil industry in the form of CLOs, and along with all of the other indebted businesses who had borrowed to create growth (and who's borrowing hinged on cashflow); if enough of that debt goes bad, things could get very, very bumpy indeed...

User avatar
geophix
VIP Member
VIP Member
Posts: 926
Joined: Fri Jul 24, 2009 9:26 am

Re: The U.S. Has Already Lost More Than 100,000 Oil And Gas Jobs

Post by geophix »

Crude oil price is close to $40 now. I am optimistic.

GuyM
VIP Member
VIP Member
Posts: 625
Joined: Sat Mar 24, 2012 11:35 pm

Re: The U.S. Has Already Lost More Than 100,000 Oil And Gas Jobs

Post by GuyM »

Crude oil price is close to $40 now. I am optimistic.
Suspect it needs to be sustained >$55 before you get break-even right along the supply chain if you include servicing debt. And it's that whole supply chain that is key - cutting costs by making your contractors work below their breakeven is just passing the pain around some more, like they have since 2014.

If we got to US$65 sustained there might be enough money in the system for everyone to actually be able to service their debt obligations, raise new financing AND make a profit.

The service companies have been bleeding out since 2014 with heavy losses and job cuts across the board as part of the "miracle" of reduced costs for the oil companies. They've had round after round of cuts, and in the current downcycle its got worse.

PGS cut 40% of their staff and are closing London, Perth and KL. Ion-GX handed out paycuts and furloughs. Weatherford is only just out of chapter 11 and had a big job cut round in April. Schlumberger just had a big layoff round. My LinkedIn feed is pretty grim at the moment...

So - we'll see. It's going to depend on the investors at the top end, and whether they will continue to buy the bonds that fund the shale oil plays.

On balance for geophysics it might be better if they didn't; shale drilling requires much less geophysics than hunting for low production cost "elephant" fields; whether that's old plays in new basins or new plays in old ones. It's those plays that need the full-wave-from inversions or the Ramform vessels churning out high quality 3D seismic at volume....

Michael_Seman
Silver Member
Silver Member
Posts: 30
Joined: Fri Nov 24, 2017 4:36 am

Re: The U.S. Has Already Lost More Than 100,000 Oil And Gas Jobs

Post by Michael_Seman »

GuyM wrote:
Fri Jun 19, 2020 2:30 am

PGS cut 40% of their staff and are closing London, Perth and KL. Ion-GX handed out paycuts and furloughs. Weatherford is only just out of chapter 11 and had a big job cut round in April. Schlumberger just had a big layoff round. My LinkedIn feed is pretty grim at the moment...

Downunder seem to be trying to sell their idle petaflops and petabytes to radio astronomers, genetics researchers et cetera.
Probably luckier than acquisition contractors, who can't repurpose their hardware.

GuyM
VIP Member
VIP Member
Posts: 625
Joined: Sat Mar 24, 2012 11:35 pm

Re: The U.S. Has Already Lost More Than 100,000 Oil And Gas Jobs

Post by GuyM »

I joined the geophysics industry in 1992 and this decent from the 2013-14 "high" has been similar I suspect to the "flat period" when I was hired on.

It was a good 8-10 years with oil prices below US$40 where we bumbled along with good years and bad, and companies coming in and out of debt crises; the actual "fall off the cliff" was in 1984 or 1985; the company that hired me on (Digicon) was not long out of Chapter 11. Between 1992 and 2000 with different firms I saw 3 redundancy rounds driven by lack of cashflow (ie over investment in assets that did not pay off)

2004-2014 gave us a geophysics industry in growth; bigger and better tech, ever more people, growth in the land and marine fleets and ever bigger and better conferences. You could see the party winding down in 2012 as investment was shifting to the growing US unconventional production.

The first warning flag for me was attending NAPE in Houston in 2010 or 11 and seeing only two or three exhibitors showing conventional plays supported by attribute or AVO work. The rest were all hydraulically fractured shale plays; the geophysics trade stands were idle,and there were landmen everywhere you looked, trying to see the next big thing.

It was the EAGE in Copenhagen 2012 (on the back of the CSEG show) that was the second big red flag that the money had shifted from conventional to unconventional. That was when Fugro announced selling off the oil and gas side (FSI) to CGG, and Paradigm was also sold. Two billion plus dollar deals should have suggested that the music was slowing down but most people were still upbeat. I was already seeing cashflow issues for some companies and more pressure on prices than before - but everyone was talking up the data library business. Big vessels still being built and launched.

At a point you can track the growth of the data libraries until the asset values held by the major companies exceeded the total industry spend on seismic data. The industry ran up a big "buffer" as it had done with smaller "busts" with the idea that when prices spiked again they could recoup those losses and not write off the investment in depreciation. This has a lifespan of maybe 2-4 years, unless you make drastic cuts as well.

Only TGS did this; they slashed everything apart from their data library "core" very quickly, and used cheap vessel time from third parties to build their data library. They alone of all the big companies kept in profit throughout.

Cutting back is always harder than growing. Companies hung on telling themselves that the shale debt mountain would collapse,or there would be an economic boom and serge in demand. Eventually you have CGG and Schulmberger throwing in the towel on acquisition entirely, and trying to follow TGS' model maybe 5 years later.

But the same basic problem was there - too much supply- of processed data library, acquisition capability and especially processing capability. The world had shifted to looking at lower risk, larger plays which meant if you needed hyper-specialised complex acquisition and processing to try and image the oilfield, the complexity and cost were probably too high to drill at $30-$50 oil prices.

And too much supply of oil; the unconventional shale oil fields can respond to a demand (price) spike much much quicker than a conventional exploration programme. Until that's out of the way, it's hard yards for conventional exploration.

So -maybe like the post 1984/5 crash we actually have 15-17 years "fallow" before the demand starts to rise; that might make it 2030 or so from the 2015 crash. That kind of gap makes sense (as it it did from 1985) as you have to ride down the depletion curves from all of the fields that were found in the boom,and allows for paradigm shifts in technology that are game changers. In 1985-2000 we saw the rise of 3D, AVO, pre-stack migration (time and depth), massive multi-streamer acquisition, land nodal technology and linux clusters, all of which fed the boom.

We'll see drones, automation, machine learning and autonomous marine vessels come into their own for sure in the next 10 years; nothing like hard times to get the technology and innovation juices flowing. Oh and Space-X's Starlink could shift things too.

Of course, over that period we will seem demand start to fall as ICE cars get replaced in the global fleet in more significant numbers.

The flip side is US shale production; that's grown like a rocket, but fast growth usually means fast decline. if the money goes out of shale as quickly as it went in, then you might see an upcycle in a shorter period - maybe 2023-4? Still I think it will be a while before we see seismic vessels coming out of "cold stack"

And that is I'd suggest the main indicator; it costs millions to take a vessel out of cold stack so you'd be pretty sure that there is money to support it before doing that. And a demand for large-scale seismic acquisition that exceeds the current seismic fleet capacity is the "point of the spear" - the other work all flows from that.

Few links

Oil prices - note the boom/bust cycles: https://www.macrotrends.net/1369/crude- ... tory-chart

Shale Profile blogs - look at the production trends, and the sensitivity to oil price variations : https://shaleprofile.com/blog/us-monthl ... uary-2020/

Just my predictions of course, but the take home might be:

- very hard for a meaningful geophysics recovery in oil and gas until US shale oil plays are out of favour
- watch where the investment money is going, especially from the majors
- recovery will be technology and automation driven, so might mean higher skill/qualification needed for entry to jobs

Good luck people!

User avatar
geophix
VIP Member
VIP Member
Posts: 926
Joined: Fri Jul 24, 2009 9:26 am

Re: The U.S. Has Already Lost More Than 100,000 Oil And Gas Jobs

Post by geophix »

This is a prediction made in 2015, don't know whether it's still accurate. The unconventional supply doesn't take a big percentage. I guess there is still a lot conventional reserve left.
world oil supply and demand.png
https://www.sciencedirect.com/topics/ea ... l-resource

GuyM
VIP Member
VIP Member
Posts: 625
Joined: Sat Mar 24, 2012 11:35 pm

Re: The U.S. Has Already Lost More Than 100,000 Oil And Gas Jobs

Post by GuyM »

The ShaleProfile blog shows the peak of US unconventional production in November 2019 as 8.1 million bbl/day.
Total US oil production in November 2019 is given by the EIA as 12.9 million bbl/day
Global oil production in November 2019 was 81.5 million bbl/day.

That means at the peak US unconventional oil was 63% of US oil production and 10% of global oil production. To put it another way the US tight oil plays produced by hydraulic fracturing and horizontal drilling was producing roughly the same as Iraq and Iran combined.

So - yeah, that paper is a bit off in its predictions. That's been part of the issue when you remember that from getting an exploration licence granted in a large offshore block to first oil production is typically 6-8 years. If you took the prediction in that paper in 2015 as being accurate, then the exploration choices you made might not look so good now in 2020.

It wasn't unreasonable mind you; unconventional production was declining post 2014 for a while and people were predicting the decline of shale and financial issues even then. They were just, well, wrong. Costs were cut, innovation happened, interest rates stayed low and the investment to drive growth continued.

In most markets you only need a +/- 5% over or under supply (or less) to create a price boom or bust; that has shifted the US (and he shale producers) into the position of "swing supplier"; that's of course fragmented across dozens of companies rather than being run via a National Oil Company (as part of the OPEC cartel)

GuyM
VIP Member
VIP Member
Posts: 625
Joined: Sat Mar 24, 2012 11:35 pm

Re: The U.S. Has Already Lost More Than 100,000 Oil And Gas Jobs

Post by GuyM »

Ah - some detail here on the US E+P industry and how it has been performing financially over the last 10 years. Not very pretty:

https://www.capriole-llc.com/news/2020/ ... i6xugx961v

The oil price war with Russia/KSA took things to the edge of the cliff, and COVID-19 may have pushed it off.

There's also a question of whether anyone will be buying the "distressed assets" :

https://nz.news.yahoo.com/why-big-oil-w ... 00738.html

I know this is a bit more financial than geophysical but IMHO the success of the geophysics industry is intrinsically linked to whether this unconventional production goes into rapid decline. Keep watching this space.

Maybe boats coming out of cold stack are the second indicator of an upswing. Sweeping company bankruptcies in unconventional Us oil plays might be the first...

GuyM
VIP Member
VIP Member
Posts: 625
Joined: Sat Mar 24, 2012 11:35 pm

Re: The U.S. Has Already Lost More Than 100,000 Oil And Gas Jobs

Post by GuyM »

And the offshore drillers are in big trouble too:

"This month, the number of floating rigs at work is expected to hit the lowest level since 1986 as oil companies cancel or defer contracts, said industry executives and analysts."

https://uk-mobile-reuters-com.cdn.amppr ... KKBN23V0IL

Post Reply
  • Similar Topics
    Replies
    Views
    Last post