Job losses have mounted rapidly in the oil and gas industry, with more expected, as a combination of low prices and reduced demand have led to spending cuts for operations and services.
The layoffs have been coming in stages, with many announced but not yet completed, and many furloughs at risk of becoming permanent job losses.
Job reductions in oil and gas upstream and large integrated companies probably have reached 100,000, according to Bob Fryklund, vice-president for the upstream energy group at consulting company IHS Markit Ltd.
Fryklund has been tracking a set of exploration and production operators, international companies, and service companies. He told Oil & Gas Journal he counted about 89,250 job reductions announced by about 66 companies as of Aug. 3, and he estimated the real number likely was about 100,000 for those segments of the business.
Cuts in capital spending set the stage for job cuts. IHS Markit has seen capital spending drop 50% for many US oil and gas companies this year, while internationally the drop has been around 30%, Fryklund said.
“We’re not too bullish for next year,” he said, saying his group was anticipating continued low spending in 2021 and only a moderate revival in 2022, still not back up to the level of 2019. He added, “People are just now starting to think about their budgets for next year.”
Varying impacts
The cuts are most easily targeted at exploration work, Fryklund said, explaining that production work maintains the basic business operations while exploration plans can be delayed. That leads to fewer service contracts for well drilling, hydraulic fracturing, and well completion.
“It’s the service industry that’s really taken the biggest hit,” Fryklund said, describing many of them as “on life support.”
Schlumberger Ltd., the world’s largest provider of oil field services, announced in late July it would cut 21,000 jobs (OGJ Online, July 24, 2020). Offshore drilling contractor Noble Corp. went a step farther, filing for bankruptcy reorganization at the end of July.
North Dakota, with the heart of the Williston basin oil producing region, offers a measure of the timing of the upstream sector job cuts, which peaked in April. The North Dakota Department of Mineral Resources reports that initial unemployment claims filed by workers in the combined categories of oil and gas extraction, mining, and quarrying jumped from 232 in February to 1,947 in March, peaked at 4,934 in April, and continued to roll in at lower numbers after that—1,944 in May, 1,202 in June, and probably 600-700 in July.
North Dakota has applied to the federal government for emergency economic stimulus funds of $66 million to put oil field laborers back to work plugging “orphan” wells—those abandoned without proper plugging, sometimes abandoned many years ago and leaking oil or natural gas.
“Currently we are looking at around 1,000 being put back to [work] through the plugging work,” said Katie Haarsager, a public information officer for the state’s Department of Mineral Resources.
Executive offices have not been spared. Chief executive officers and first vice presidents at oil and gas production companies have been taking cuts of 10-30% in total compensation this year, Fryklund said, adding that he had not seen such serious reductions in 40 years.
Downstream ripples
Refining and marketing operations are inherently less prone to job cuts because of the integrated nature of a refinery’s operations.
A refinery needs all of the different units to operate, said Mike Smith, chair of the National Oil Bargaining Program at the United Steelworkers, the union including a large percentage of workers at refineries and petrochemical plants.
“We don’t run fat,” Smith told Oil & Gas Journal Aug. 7 to explain why layoffs were fewer in number in the downstream. Under normal operations, refiners are “running on minimal crews,” he said.
But the drop in demand for gasoline and jet fuel has been especially severe, and while individual units in a refinery may not be separately idled, whole refineries can be shut down.
The first big jolt of the pandemic for refinery jobs was announced near the start of August by Marathon Petroleum Corp., the largest US refiner. Marathon had idled two of its refineries in April and then announced Aug. 3 that the refineries would be closed (OGJ Online, Aug. 3, 2020). The 161,000 b/d Martinez, Calif., refinery employs 740 workers, and the 27,000 b/d Gallup, NM, refinery employs 250 workers.
Contract workers, needed periodically at refineries, also will be hit. A Marathon spokeswoman was quoted as saying there could be as many as 2,500 contract workers needed at the Martinez refinery at any given time. It will be reduced to a storage terminal, needing relatively little staff.
Union-negotiated protections and benefits for United Steelworkers will soften the economic blows for many refinery workers, but the Steelworkers have only modest numbers of workers in the upstream, notably in California and Alaska.