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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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The End Of The Bust? U.S. Shale Patch Could Start Hiring Soon

Shale Oil

More than 150,000 jobs in the oil and gas sector in the U.S. have been cut since the start of the oil price crisis in mid-2014. In just the first ten months of this year, sector players announced plans to lay off 103,000 people, up from 90,000 who lost their jobs in 2015. According to data from February this year, the total of the cut jobs represents over 10 percent of the oil and gas workforce as of October 2014.

Now, that sounds bad, especially coupled with the conclusion of a Wood Mackenzie report that calculates that Big Oil needs to slash another US$370 billion in costs this year and next, to prop up its balance sheets. This means more jobs will be cut.

However, there are indications that the worst may be over for the U.S. energy industry. In fact, the worst may have been over even before oil prices got a boost from OPEC’s production cut deal.

A November report from CNBC showed Bureau of Labor Statistics data revealing that employment in the oil and gas industry had steadied over the last couple of months after declines in 2015 and most of 2016.

Commodity analyst Liam Denning wrote for Bloomberg that in October, just 700 jobs were shed in the U.S. oil and gas industry, and they were all support positions. This, he noted, was the first month that job losses were below 1,000. It was also a 75-percent reduction from the job losses for October 2015, according to BLS figures. Denning also noted that payrolls were stable, with some increases even, and working hours were longer. Related: Venezuela’s Maduro Praises The OPEC Deal, But How Good Is It Really?

All this goes parallel to the steady increase in active rigs across the shale patch. Last Friday, the total reached 477, according to Baker Hughes, representing an increase of 25 rigs over the last 27 weeks. In short, U.S. oil is recovering steadily.

When Saudi Arabia spearheaded the flood-the-market strategy of OPEC that aimed to clip the wings of U.S. shale boomers, success was all but guaranteed. The strategy did indeed work: bankruptcies, thousands of job losses, cost cuts to the bone—all took their turn on the stage set by OPEC. What the organization apparently failed to factor in was that oil prices dropped for everyone, even for them.

This realization, and the fact that some OPEC producers for the first time had to experience a budget deficit, led to the desperate effort to boost prices by cutting production. The glut had served its purpose, but shale boomers proved to be more resilient than anticipated.

This resilience may have something to do with the fact that they did not sit idly by, waiting for OPEC to do something about prices. They passed some of its misery onto midstream operators, asking for and receiving shorter contracts and services at often significant discounts. In addition, they also got serious about cost cuts.

This strategy by US shale players has been as effective as OPEC’s strategy, but unlike the latter, it is more sustainable. Now, shale boomers can enjoy the rally in oil prices brought about by the OPEC deal while it lasts, and set aside some cash for hiring when the time comes.

By Irina Slav for Oilprice.com

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