US job cuts may strain shale oil recovery

The US oil and gas industry has made tens of thousands of job cuts as firms seek to conserve cash through the Covid-19 demand slump. But potential staff shortages when demand eventually recovers may weigh on an already cash-strapped sector.

Upstream independent Hess says the industry will not be able to mirror the quick turnaround achieved during the previous downturn of 2015-16, when operators promptly added back rigs and ramped up activities. Shale got back on its feet, with oil prices still in a $40-50/bl range in 2015-17, as somewhere between $60bn of equity investment and $20bn of debt "was thrown at shale and got it going", chief executive John Hess says. If shale companies are marked to market, they have collectively lost about $200bn in value, he says. As the industry hunkers down yet again, shale output is expected to decline to about 7.6mn b/d in July from 9.2mn b/d in March, according to the EIA's Drilling Productivity Report. "The production declines in place will stay with us for a while," Hess warns. "Shale's recovery will be more sticky this time."

The job reductions are being driven by oil service companies. Halliburton, with about 55,000 employees worldwide, slashed nearly 5,500 jobs in Texas alone in March-April. And larger peer Schlumberger has initiated a new round of restructuring following a sharper-than-expected slowdown in rig demand. It is moving from 17 different product lines to four divisions, and restructuring its geographical base around five key regions. These measures will permanently remove over $1.5bn/yr in costs, but will incur a cash cost of $1.2bn-1.4bn, chief executive Olivier Le Peuch says. The company's latest announcements are in addition to North America headcount reductions of about 1,500 in the first quarter, which cut its global workforce to 103,000, from 105,000 in 2019. "We realised we had to transform Schlumberger into a leaner, more responsive company, quickening the strategic changes already under way," Le Peuch says.

State filings show that a host of producers — among them Noble Energy, Newfield Exploration, Samson Resources and Sandridge Energy — have also reduced their headcount. They have been joined by sand suppliers and companies selling equipment such as cranes and tubes. Permian operator Concho Resources is working towards its target of cutting $100mn/yr from operating and general and administrative costs, which typically involve expenses such as salaries and office rent. "We are well on our way to capturing those," president Jack Harper says.

Remote control

Bigger firms, both in the service sector and among producers, are betting that improvements in their use of technology, digitalisation and automation will more than make up for the workforce reduction when oil demand recovers. Schlumberger has redesigned its well-site models using digital technologies and processes that enable remote work, and now 60pc of its drilling operations are being run remotely with real-time control. It has deployed its remote working capabilities in more than 80 countries. "Today, we routinely reduce our operational headcount by 25pc when operating remotely, and soon we will reach or exceed 50pc on certain well-site operations," Le Peuch says.

But the US onshore industry involves thousands of small producers typically running a handful of rigs, so access to such advanced technologies or the scale to deploy them economically may remain challenging. Concho's Harper says that big questions remain over how much of the curtailed production will come back and what any recovery will look like, with the industry struggling to move in one direction as companies make independent decisions. "I think on the US supply side, things will continue to be challenged," he says. "It will be inefficient."

By Manash Goswami

US oil rigs and production