Much has been made of the manpower shortage in the oil industry. I have been interviewed about it, I have written about it, and I saw it first hand when I was working for ConocoPhillips in Aberdeen, Scotland. Recruiting people was very difficult, and contractors – especially process engineers – were commanding unbelievable salaries. I got so many calls from headhunters – including the companies mentioned in the story below – that I literally hated to pick up the phone for fear I was going to get tied up for 15 minutes.
Well, that was then. Since oil prices have fallen, ConocoPhillips has announced they are laying off 4% of the workforce, Schlumberger is laying off 5% of their North American workforce, and now contractors in the North Sea are rolling back salaries by 10%:
North Sea contractors facing a 10% pay cut
More than 1,000 North Sea contractors will see their pay cut by an average of 10% as oil companies feel the impact of lower crude prices.
The wage reductions affect only one oil service business, Wood Group Engineering (North Sea), but its rivals could follow suit as their oil company clients seek to reduce costs.
I worked with Production Services Network (PSN) when I was there, and the story mentioned them as well:
Among the other large North Sea oil service firms are PSN and AMEC.
Bob Keiller, chief executive of Aberdeen-based PSN, said: “We are looking at all ways to help our customers reduce costs.”
One of the reasons that I decided to join the oil industry in the first place was that I felt like it was a safe harbor in a world that would be facing big energy challenges in the near future. In fact, the energy sector has been mentioned as a place to find ‘recession-proof jobs.’ Some are about to discover that even so-called recession-proof jobs can be impacted by a recession.
Note: For the gardeners who read this blog, I just started a gardening journal this morning. It is basically just a journal of my gardening experiences in North Texas. I find it easier to do this via a blog than to keep a notebook. Anyway, feel free to stop by and share any tips you might have. The URL is My Gardening Blog, and I will update it quite often as gardening season gears up.
Except for the occasional spike,it took 100 years for oil prices to reach the $45 area in ’05,just 4 years ago. Oil companies were tickled pink when they first got these kind of prices for their oil. But now,it’s doom and gloom time?
We didn’t have a boom in Louisiana this time around. I guess they’d already gone over everything with a fine toothed comb. Since we had no boom,we won’t have the customary bust either. The State will have less revenue,but unemployment shouldn’t skyrocket,at least.
It took 100 years, that’s true. It took roughly 1.4 human lifetimes. That’s just another way of looking at it.
In those 100 years the supply was still increasing every year. The price only rose because demand increased with it. But now, at the peak—the top of the bell curve—supply isn’t set to rise anymore. But with demand still growing, prices have no choice but to rise. Simply supply-demand, simple math, simple reasoning.
Aw shucks, look who doomered it all up.
RR — I am in awe! You find time to do a high-pressured job in cutting-edge technology with lots of international travel; write this excellent blog; write chapters for serious technical books; stay married; and you can still find the time to garden — and to write about it!
Those of us who are still struggling to get ready for Y2K would really appreciate it if you would write about time-management!
Those of us who are still struggling to get ready for Y2K would really appreciate it if you would write about time-management!
The key is not to sleep. 🙂
Nah, if you look closer, you will see that this comes in bursts. I flew in from Europe on Thursday. While on the 10 hour flight, I wrote quite a bit. I have been waking up at 4 a.m. for the past 2 days because of the jet lag, and I have been writing because I am the only person up. But when I was in Europe I was struggling to write at all.
Cheers, RR
Some interesting tidbits I saw in the news…Brazil plans to increase output from its Tupi and other fields to 5 mbd by 2015. (LA Times). The Tupi field is bigger than than Canterelli. Petrobas is going to spend $170 bil.
Maybe oil guys can get work there Speak Portguese? Brazilian women….
But in general I think the oil industry will go comatose in 2010. If the world’s factories produce 10-20 percent less in 2009 than 2008, and if trades declines by 20 percent, why would not oil demand also fall by 10-20 percent?
That is what is shaping up now. We will have way too much oil production in 2009. Probably about 7-12 mbd excess capacity, and who knows how much excess production. Enough to flood every storage tank on land or sea.
This global economy does not look good. I hope I am wrong, and global recovery begins immediately. But have guys been reading any output figures lately? Trade figs? Everything is down 10-40 percent. Global car production down 40 percent!
Hang on to you petroleum engineering degrees, they will become valuable again someday. But in the meantime, you may want to figure out how to sell REO property,
“But in the meantime, you may want to figure out how to sell REO property,”
Got to find someone to sell it to. And that is the wonder of the human spirit — while the usual suspects in politics & the media are running around like chickens with their heads cut off, smarter people are recognizing the opportunities inside the downturn.
A number of historians have now come to the conclusion that what made the Great Depression "Great" was old FDR. He intervened in the economy so capriciously with such intrusive regulations that he prevented this normal seeking of opportunities in a downturn. Blood on his hands. Unfortunately, looks like today's politicians want to repeat FDR's mistakes.
But to get back to the topic of the post — the oil industry has been boom & bust for all of its history. The strange thing is that too many managers of major oil companies lack the historical knowledge & the intestinal fortitude to seize the opportunity by riding out the downturns. North Sea contractors cutting pay instead of firing staff is actually a positive sign — some executives may finally be earning their salaries.
Demand for oil may go down (although I am still suspicious that there is an element of global liquidation of inventories going on), but what are the consequences? Instead of using energy building new cars, people keep on running old gas guzzlers, etc. And all the time, production from existing fields is declining.
We have learned from the high-tax EU (which imports about as much oil as the US) that consumers have never seen oil price levels high enough to make non-oil transportation fuels competitive. There is no doubt that today's bust in the oil industry will be followed by the next inevitable boom. Only question is – When? Aye, there's the rub.
Kinu-
There is one positive out there — homes sales are higher, y-o-y now than a year ago, at least here in CA. So there is living to be made selling real estate, and I suspect sales will increase as prices are still coming down. It is almost affordable now.
I have to disagree with you on taxing gasoline (you knew I would). Europe’s oil consumption has been declining for decades, even with cheap oil. Cars there get higher mpgs. Europeans use half the btus per capita we do.
I think there is a great deal of sense in energy-importing countries taxing energy cnsumption.
Another positive: GDP per barrel of oil used has been rising for decades. If oil can stay expensive, I would expect this trend to accelerate.
The problem is, oil never seems to stay expensive.
My sincere best hopes to all out there in this economy, no matter what industry you are in.
I hate Texas gardeners. I have a brother-in-law who left this grubby has been industrial city in the Northeast to retire from the Air Force in San Antonio. Just to make him feel more smug on his decision I like to call in February during a snow storm. When I ask him his wifes whereabouts? He chuckles. “She’s out in the garden planting tomatoes.”
Kidding aside but not awfully factual, I just read on someones blog The Netherlands in planning a huge gigawatts wind farm in the North Sea. Enough to supply six European countries with electricity. Is that a switch? I hope they can get the financing for it. Maybe some of your other commenters could pro or con this statement. J.C. Sr.
“Europeans use half the btus per capita we do.”
They also produce about half as much in economic value per capita as the US. The two factors are not unrelated.
Europeans today use a lot more energy per capita than they did in the 1950s. And Europeans in the 1950s were positive energy hogs compared to Africans today, on a per capita level. So what is the right level of economic activity, with its associated energy demand per capita?
Pres. Obama wants to stimulate the US economy, which will increase US energy demand. PM Brown wants to do the same thing in the UK. Are they wrong?
Empirical observation — Most of the people in favor of reducing energy demand actually want to reduce other people’s energy demand.
“Brazil plans to increase output from its Tupi and other fields to 5 mbd by 2015.”
Did you see the latest find in Brazil Benny? They say it’s bigger than Jupiter,which is said to be bigger then Tupi. Exxon has a 40% investment in it. The total discovered in the Santos Basin in the last few years is close to 30 billion barrels,if these estimates making the news are accurate.
Maury
Time to learn to speak Portugeuse?
Brazil has ethanol, Brazil has oil, and Brazil can grow the highest-yielding biofuel, palm oil trees. Brazil has lots of land, and pretty women. Sunshine.
My suspicion is that Latin American countries will always yank defeat from the jaws of victory, and Brazil will again squander opportunity. But an interesting country.
Kinu: Western Europe’s per capita GDP is about $40k, and the USA’s about $45k, eyeballing a Wikipedia chart. France and German right at $39k. So they use about one-half the BTUs, but produce about 90 percent as much.
My impression is that Europe has passed us by in living standards, civility, technology. Better health care, better schools. The Far East is passing us by now, and Japan already has.
Did you know that Internet download speeds are much higher in Europe than the U.S?
RR-
A new study was posted at GreenCarCongres, and it states corn ethanol is much better than before. By academics from a corn state…still, worth a review.
http://www.greencarcongress.com/2009/01/study-finds-rec.html#more
Just out of curiosity, do you know if the job numbers are below pre-$100 a barrel numbers? It seems that the job cuts and salary reductions are more a sign that the industry took the good times a little too seriously and are simply having to cut back to reality.
But I could be totally wrong.
I don't think there was widespread overhiring, as people with the the most highly sought after skills (geology, drilling, reservoir engineering) for the most part were just not there to overhire.
In my own part of the world, I am not hearing about too many layoffs. Some, but not an epidemic. Mostly I'm seeing a decline in activity. Rigs are being laid down, seismic going unpurchased, things like that. Costs have still not come down to where they were when we were at $40 on the way up, but as contracts expire and demand continues to drop or stays low, we will see costs come down.
Companies were active at $40 a few years and will be again when costs come back down to equilibrium. If they can get credit!
——————–
From the trade journal Explorer (American Association of Petroleum Geologists:
http://www.aapg.org/explorer/2009/01jan/hiring.cfm
“For the most part, what I’ve heard out of companies is that they’re already running so lean they can’t afford to lay anybody off,” said Mike Ayling of MLA Resources in Tulsa.
So far, recruiters are backing up that viewpoint.
“Drilling has slowed down but G&G – the geologists and geophysicists, geoscience professionals – is in quite high demand,” said Anna Shchelokova, senior HR consultant for Worldwideworker.com in Houston.
“I don’t see any problems in the U.S.,” she added.
Worldwideworker calls itself the “world experts in energy jobs.” Shchelokova said energy-employment demand is holding steady in North and South America and Africa, off a little for Europe, Asia and the Middle East.
Drilling engineers and reservoir engineers also continue to be in demand, she said.
“People probably won’t get the job of their dreams right now, but they will definitely get something,” Shchelokova noted.
Ayling said the momentum built up by the industry and its need to continue ongoing projects is helping maintain the steady employment demand.
“Companies were active at $40 a few years and will be again when costs come back down to equilibrium.”
I don’t see the current $47 going forward armachair. Like Benny,I’m expecting a bigger haircut for OPEC. My own hunch is sub-30 by the end of march. Maybe sooner.
Maury,
I don’t disagree with you on that, I was just using $40 as it’s the flavor of the week.
The main point though is that costs follow prices. Lots of wells were drilled during the 20 year period from the mid-80’s through early 2000’s when oil mostly hovered between the high teens and high 20’s. A large percentage of those wells wouldn’t have been drilled if service companies were bidding rates we saw last summer.
I don’t think we’ll see massive layoffs in the geosciences and engineering until operators perceive that prices in the $20 range will be stable for an extended period of time.
A new study was posted at GreenCarCongres, and it states corn ethanol is much better than before. By academics from a corn state…still, worth a review.