Talking about safety

Feb. 29, 2016
Rapidly shrinking numbers of people performing rapidly diminishing amounts of work should generate fewer total accidents. That's a rare advantage of a devastating market collapse.

Rapidly shrinking numbers of people performing rapidly diminishing amounts of work should generate fewer total accidents. That's a rare advantage of a devastating market collapse.

But is the oil and gas industry really safer than it was before crude oil lost two thirds of its value?

Unprecedented contraction

Responding to plunging revenue from crude sales, oil and gas companies are confining spending to shrunken cash flow. The result is an unprecedented contraction of upstream operations and capability. Companies are delaying or canceling projects, annulling contracts for drilling and other services, demanding that vendors and service providers slash prices, and laying off employees, in many cases thousands at a time. Scores of independent producers have gone bankrupt. Others will follow.

That the end is not yet at hand is evident in drilling trends. According to Baker Hughes Inc., 1,891 rigs were active worldwide in January. That was down 78 units from the month before and down 1,418 from January 2015. In the US, the rig count for the week ending Feb. 19 was 514-796 fewer than for the comparable week last year. From the recent peak spanning 3 weeks in September 2014, the recent US rig count was down by 1,417.

The offshore drilling industry has not been spared to the extent it was in many past slumps. According to Quest Offshore, more than 75% of the fleeting of floating drilling units had been idled in the 12 months ending in January. In that month alone, 18 rigs went off contract, and seven rigs with contracts were idled. Spending $40,000-100,000/day or more, depending on rig type, to keep idle rigs ready to work, contractors feel strong pressure to retire rigs. Quest Offshore says 118 floating rigs were out of work at the end of January and estimates almost 60 floaters might be retired on the basis of age alone.

Strains such as these apply across the entire upstream oil and gas industry. When the slump ends-and it will-the industry will be much smaller than it was when crude prices began to fall in 2014. It also will be smarter and more profitable.

But will it be safer? Will oil company employees who keep their jobs be more or less likely than they were before the crash to be injured at work? Might chances be increasing, notwithstanding the diminished number of projects, for a major environmental accident?

As companies frantically streamline themselves, questions like those draw little public attention. The pressing metrics are financial and operational. Companies integrated safety and environmental responsibility into their working cultures before the slump. For many of them, those concerns now yield to immediate essentials of survivability.

Yet the operational adjustments companies make to cash flows shrunken by market collapse require changes in practices related to accident prevention. Inevitably, workers will assume expanded shares of available work. New emphasis on cost-cutting will become new temptation for corner-cutting. To these changing realities of the workplace companies should be adapting policies and procedures related to human safety and environmental protection. And they should be reporting the adaptations to shareholders and the public along with their progress toward financial and operational goals.

No compromises

Safety disclosures are more important now than ever. Acceptance by the public of oil and gas operations suffered immeasurably from the fatal Macondo blowout and spill of 2010 in the Gulf of Mexico. Exacerbating that problem is a surge of targeted antagonism related to climate change. While the "leave it in the ground" agenda is impracticable, it increasingly influences policy-making. Another tragedy like Macondo would turn antioil sentiment into political obstructionism difficult for the industry to overcome.

Financial distress in no way compromises these moral and practical imperatives that work be safe for workers and nature. It in no way relaxes requirements for lapse-free performance. Oil and gas companies should be talking about how, amid all the changes they're making, they'll meet that standard.