This time a year ago, the oil industry’s biggest problem was finding a way to deal with the “retirement tsunami” about to crash down on it as older oilfield workers hung up their cork boots. Now, with oil prices still in the doldrums, many of those same workers are lucky to be hanging onto their jobs, while others have been booted from the payroll as an ugly wave of lay-offs takes hold.
One of the worst-affected areas is the Canadian oil sands, where a higher per-barrel cost of production than conventional sources has oil companies scrambling to cut capital expenditures and, in several cases, put long-term projects on ice.
One of the region’s big players, Husky Energy, recently announced 1,000 construction workers employed by a contractor at its Sunrise oil sands project would be issued pink slips. The bad news for the workers came a day after Husky said it had started to produce from the US$3.2-billion, steam-assisted gravity drainage Sunrise operation it co-owns with BP Plc.
The lay-offs by Husky followed Suncor’s decision in January to cut 1,000 employees and Royal Dutch Shell’s announcement it would shed close to 10% of the workforce at its Albian sands project — about 300 workers.
The Canadian Association of Oilwell Drilling Contractors, which closely tracks drilling activity, in February said up to 23,000 jobs could be lost as the number of rigs falls. Since the price started dropping last September, about 13,000 positions in the Alberta natural resources sector, mostly oil and gas, have been eliminated, according to Statistics Canada.
The bloodletting among the oil majors and their vast web of ancillary services has of course extended to the US, which appears to be taking far more casualties than Saudi Arabia in the battle for market share.
In January, oilfield services giant Baker Hughes Inc said it would lay off 7,000 employees, about 11% of its workforce. That number was rivalled only by its competitor Schlumberger Ltd, which let go of 9,000 workers. Shell, Apache, Pemex and Halliburton are among the major oil companies to issue recent pink slips to the growing army of unemployed oil workers.
In the US, the worst pain is, not shockingly, expected to be felt in Houston, Texas.
Assuming a one-third reduction in oil-company capital expenditure this year and 5% next year, the hydrocarbon capital of the world could lose 75,000 jobs in a city that has added 100,000 new positions every year since 2011, a University of Houston professor said.
The oil-jobs nightmare is in fact spreading like a cancer. According to Swift Worldwide Resources, “the number of energy jobs cut globally has climbed well above 100,000 as once-bustling oil hubs in Scotland, Australia and Brazil, among other countries, empty out”, as Bloomberg reported recently.
Examples include foreign-trained engineers whose promise of employment at liquefied natural gas plants in Australia has evaporated as projects get delayed; development projects halted in Brazil, resulting in the closure of international schools and the relocation of workers; and 8,000 Mexican workers left without pay cheques after Petroleos Mexicanos slashed contracts and purchases, Bloomberg said.
Of course, industry defenders say the oil and gas business is boom-and-bust by nature, and most veteran oilmen have gone through many a cyclical downturn and lived to fight another day. The question of whether or when the oil price will recover and all those laid-off workers are rehired is best left to the prognosticators.
In the meantime, there is a danger in oil companies cutting too deep, according to oil and gas industry recruiters. They say firms that lay off too many workers will put pressure on older workers who may opt for early retirement. That could leave companies in the same situation as the 1980s, when an oil downturn meant few businesses hired and new graduates went into other more promising fields, leaving a serious talent gap.
“They will be very careful about reducing staff, because they’ve seen cycles like this before where commodity prices are weak for a certain period time, they lay off employees, and they’re not well positioned to get access to high-quality talent,” said Mike Rowe, vice-president for exploration and production research at Tudor, Pickering, Holt & Co, an energy investment and merchant bank, as quoted in a CNBC story on how the lay-offs could come back to haunt the industry.
Andrew Topf writes at OilPrice.com.