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Oil Capped By COVID Fears

Oil Capped By COVID Fears

Oil prices rose this week…

Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Did Big Oil Layoff Too Many Workers Too Quickly?

What was once a mere warning to the oil industry has now become a reality: the severe cost cuts undertaken by virtually every oil and gas business in the world has created a serious workforce shortage, with massive layoffs pushing skilled workers into new lines of work.

This is a snippet of what oil industry layoffs looked like earlier this year, compiled from various sources. This is not a complete list, and includes only some of the biggest players in the energy field:

(Click to enlarge)

On a global scale, the overall number of job cuts in the oil and gas industry reached around 350,000, according to a report from Graves & Co. That was in May, when prices had recovered somewhat.

Oil prices have since risen to above $50, and not just because of OPEC’s agreement to cut production. Energy businesses, especially in the shale patch in the U.S., adapted to the lower-for-longer price environment, with some, but not all, managing to lower their breakeven point enough to be able to start raising production again.

Big Oil has started to pay more attention to smaller, quicker-return projects, and although they are not yet hiring on any meaningful scale, the downward trend in oil and gas employment is slowing down, and may be reversed in the not too distant future. Related: U.S. Shale Set To Kill Oil Price Rally

Unfortunately for Big Oil, the layoffs so far have included large numbers of highly qualified and uniquely skilled staff—a significant portion which have, in all likelihood, found employment elsewhere. Even not-so-highly-qualified employees have moved on. If the oil industry attempts to hire again, it will find itself training a whole new generation of engineers, drillers, and other special-skills personnel.

According to Schlumberger M&A portfolio manager Ghassan Mirdad, there was a way around the layoffs, and this way was “sending people away for a year or two to receive education before cutting jobs.” But this is the same Schlumberger that tops the layoff ranking.

Others, namely France’s Total, have been wary of big layoffs. The company said last year it would have to sell assets and let people go in order to survive the crisis, but these 2,000 layoffs you see in the chart above are a result of attrition and are set to be carried out through 2017. As CEO Patrick Pouyanne said in January, in a demonstration of far-sightedness that’s a rarity in oil and gas, Total was holding onto its workers because it would need its workers when prices go up.

Related: Glencore, Qatar Fund Buy 20% In Rosneft

Even though the employment problems of oil and gas companies look serious, they are only theoretical at this point. There is still that global oil glut to be taken care of before Big Oil feels confident enough to start expanding operations in a way that would necessitate a significantly larger workforce.

If, however, prices continue to rise, the problem will quickly turn from theory into reality. 350,000 cut jobs is no small matter, and some companies that went on a wild layoff spree in the last two years may find themselves in an awkward position.

As the CEO of one such company, Essential Energy Services, admitted, “Due to staffing reductions early in the year, we could become constrained in our ability to supply equipment in the short term.” In short, the company will likely lose business because of its cost-cutting strategy.

Events and trends are invariably clear in hindsight, but difficult to discern while they are taking place. It seems that this is exactly what’s happening in oil and gas. Just as Saudi Arabia thought it could withstand the low prices while it pumped at-will regardless of demand, most oil and gas companies thought job cuts would help to save their business during the crisis without giving much thought to what happens after.

By Irina Slav for Oilprice.com

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  • Osama on December 08 2016 said:
    Very nice article. The issue of workforce will be a pressing one in the future as the oil supply glut turns into a supply shrinkage....due to cutting of around $1tr of projects by different companies...
  • Doug Sheridan on December 09 2016 said:
    For smaller oilfield suppliers, there's also the issue of obtaining the necessary working capital to restart activity. In many cases, these companies--in an effort to survive--tapped into the funds that would normally finance new sales in the form of inventory investment and accounts receivable. Those funds are now gone. It's a difficult situation for many, and goes to show how many factors can impact whether smaller players survive. Good luck and Godspeed to those still fighting the good fight.
  • Mikey on December 12 2016 said:
    Great article, good job. In Dec. 2014, Baker Hughes had 62,000 employees and in Dec. 2016 they have 34,000 employees. Baker Hughes laid off 28,000 employees in last 2 years.
  • Mikey on December 12 2016 said:
    Great article, good job. In Dec. 2014, Baker Hughes had 62,000 employees and in Dec. 2016 they have 34,000 employees. Baker Hughes laid off 28,000 employees in last 2 years.

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