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U.S. Shale Faces A Workforce Shortage

Permian Basin

A problem for the U.S. shale oil and gas industry that analysts and observers have warned about for a long time has materialized: there is a shortage of workers. According to one service provider for E&Ps, trucker jobs remain vacant even with an annual paycheck of $80,000, which is certainly a big change from a couple of years ago when layoffs were sweeping through the shale patch.

This shortage could dampen the prospects of not just shale producers, who are eager to ramp up production as quickly as possible and take advantage of higher international oil prices, but it will also seriously hamper the recovery of the oilfield services segment, which has been hit harder than E&Ps by the price crash.

We wrote earlier this year how oilfield service providers are starting to get back at producers with higher fees for their services, to make up for the hefty discounts they were forced to offer over the last two years to stay afloat. Drilling rates per well almost doubled in some cases as the market turned from buyer-dominated to supplier-dominated.

We also noted then that this could be problematic for producers as they, too, have yet to recover fully from the blow dealt them by the price crash, limiting their ability to regain profitability. Now, the workforce shortage is exacerbating the problem.

U.S. crude oil output has been rising at a faster rate than in the original shale revolution, according to Bloomberg, gaining 125,000 bpd on average since last September. Currently, it exceeds 9 million bpd and is widely seen as the main factor limiting the growth potential of oil prices. Related: Oil Steadies Itself Ahead Of Big Week

What’s more, E&Ps are increasing their capital and exploration budgets for this year, despite the arrested growth of oil prices. Continental Resources will be investing $1.95 billion, aiming to accelerate production growth in the second half of 2017. Hess Corp is planning a budget of $2.25 billion, up from the 2016 actual spend of $1.9 billion. Chesapeake Energy Corporation plans total expenditures in the range of $1.9 billion–$2.5 billion this year, compared to total capital expenditures of $1.65 billion–$1.75 billion last year.

How they are going to realize these budgets if their contractors are unable to find drillers and people to drive the trucks with fracking sand—the use of which is hitting record-highs—remains an open question, amid rising prices for everything from drilling rights to fracking sand.

Continental resources’ Harold Hamm warned last week at CERAWeek that shale boomers better proceed with caution in raising their output. He claimed that the recovery is “going to have to be done in a measured way, or else we kill the market. Related: Global Rig Count Suggests An Oil Price Rally Is Near

Shale boomers have been running very fast to recoup their losses, repay their debts and resurface into profitable territory. But running too fast could trip them up, and there are enough signals that they would do better to slow down a bit. Rising prices and workforce shortages can very well offset part or all of what was gained over the last couple of years in terms of efficiency improvements and production cost reduction.

By Irina Slav for Oilprice.com

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Leave a comment
  • Dan on March 14 2017 said:
    Who moving, buying a home, having the government pull the rug out to protect the dollar again and losing their family to drill oil? Any takers? Send John McCain. " some energy companies will have to go bankrupt ". That McCain.
  • Daniel Minsk on March 18 2017 said:
    Drug testing eliminates more potential workers than government uncertainty, moving expenses, and lack of skills. People can learn the trade if they stay sober long enough, and can pull themselves away from video games, internet porn, and social media.

    Bad parents, bad schools, bad social milieu. And still those who want the work badly enough to learn the skills and move themselves to where the work is, can do.
  • poorkg on March 20 2017 said:
    agree w comments above, and would like to remember the gov't role in the drug testing thing. If they were honest they would admit it is a mostly negative thing. doesnt quite do what they claim, and no one will admit it. hardly a recipe for success..unless your goal is something else?

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