Not all oil industry segments suffer equally as prices slide

Oil Pro

From EnergyWire — WORKFORCE: Not all oil industry segments suffer equally as prices slide

Pamela King, E&E reporter

While dropping oil prices have not brought the energy job market to a standstill, it’s far from business as usual. Oil and gas recruiters say they’re cautious but optimistic that the industry’s workforce will weather the downturn with only minimal layoffs and a slight deceleration in hiring. “I haven’t seen panic,” said Jeff Bush, founder and president of CSI Recruiting. “I haven’t seen companies in a crisis mode.” Assuming the slump lasts 18 to 36 months — Bush’s prediction as of last week — there are certain types of projects, especially in the shale patch, that can turn quickly in reaction to price fluctuations. Offshore drillers, whose project timelines often span a decade or more, won’t make changes unless they foresee a longer-term price dip, he said. So far, service companies have suffered the biggest losses.

On Wednesday, Baker Hughes Inc. followed up news of layoffs at competitor firms Halliburton Co. and Schlumberger Ltd. with an announcement that it would decrease its staff by 7,000 workers this quarter (EnergyWire, Jan. 21). Less skilled professionals and the caterers, drivers and other workers who support the industry will be the first to go. But companies are hanging onto their top employees. When oil prices recover, they don’t want to find themselves wanting for talent, said Bob Melk, president of the oil and gas portal Rigzone. “The cyclical nature of this market is evident in history, and I do think that the smarter companies are going to be careful about the layoffs and the diminished focus on recruitment,” he said. “If you know just six months ago it was difficult to find the skilled labor that you needed, it’s just basic logic to continue to promote your organization’s value, your position in the marketplace, and to try to attract that talent, even in a down market.”

Rigzone, which released its biannual hiring survey earlier this month, is considering conducting those assessments more frequently throughout the downturn (EnergyWire, Jan. 14). “It’s fair to assume things are moving quickly,” Melk said. Where are the opportunities? The oil price drop hasn’t affected all segments of the oil and gas business equally. Midstream projects to shake loose stockpiled energy supplies will still move forward, as will liquefied natural gas terminals, said Dane Groeneveld, regional director for the Americas at NES Global Talent.

In the LNG space, there are only a finite number of licenses, so it’s a race to get those projects online, he said. Upstream, workforce demand will be on the production and completions side, predicted Chris Melillo, managing partner of oil and gas recruiting at Kaye/Bassman International Corp. If onshore professionals don’t have those skill sets, they might have a difficult time finding work in the near future.

Bush recommends that job seekers search out smaller companies, which tend to continue interviewing and hiring during a down period. Bigger companies need to communicate to shareholders that they’re cost-conscious, so they won’t be hiring at the level they were before oil prices took a turn, he said. Large outfits can run their operations with a marginally smaller staff without missing a beat, but if smaller firms have a couple of key openings, they’re less likely to have the extra bodies available to absorb that work, Bush said. Therefore, they’re going to be more active in the hiring market.

Salaries

Those workers who are job searching during the downturn could find themselves settling for lower salaries than they might have found when the market was hot. Rigzone reported earlier this month that 37 percent of hiring managers are fielding candidate requests for higher salaries, down from 61 percent last summer (EnergyWire, Jan. 14). Fifty percent of oil and gas companies queried for recruiting firm Hays PLC’s 2015 salary guide said they raised pay between 3 and 6 percent last year. The same percentage said they believe they’re on track for more of the same in the coming year, but the survey did not reflect the recent oil price collapse. ”

Should [West Texas Intermediate] prices continue to decline, we expect downward pressure on salaries and hiring intentions,” Hays wrote in the introduction to the survey’s oil and gas section. Contractors are particularly vulnerable. Whereas temporary workers used to be able to shop around for higher pay rates, they might now face a 10 to 15 percent pay cut, Groeneveld said. In addition to lower pay, job seekers might have to move to less attractive locations and accept longer shifts, he added. Candidates with more specialized abilities will continue to receive favorable offers, but those workers are more likely to be securely employed and hesitant to make a move under uncertain conditions. “You have a reluctant candidate market, you have a hiring market that is still in need of certain professionals, and you have a slight game of chicken going on,” Melillo said.

Retirements

Though the top echelon of the oil and gas labor force will be in highest demand in the coming months, those workers could be looking to exit the industry altogether. The energy business has long been over-saturated with older employees who were ready to retire in 2008 but held off once the market crashed. Labor experts have watched the industry with concern, wary of the impacts of losing the baby boomer generation’s knowledge and experience (EnergyWire, March 22, 2013). Oil and gas could be in store for the detonation of a demographic time bomb if more experienced energy professionals have been able to get their retirement plans in order and are no longer reaping the benefits of a booming market.

“Departure is a negative,” Bush said. “It’s also an inevitability.” A surge of retirements could ultimately be a positive for the energy industry if they compensate for the lack of production-driven hires. And companies with a large crop of entry-level workers would be well-positioned to give their newbies face-to-face time with more experienced staffers, allowing time for individualized instruction and mentoring, which is hard to achieve when a company is busy with constant operations, Groeneveld said. Melillo is less certain that the downturn will bring a wave of retirements. Restricted stocks may be starting to take a dive, and seasoned workers who know their value to an employer are likely to hold on to their jobs, he said. Aside from that, oil and gas is a “lifer” industry in which workers take up consulting gigs after retirement. If a tough market dries up funds for those positions, that’s another incentive for would-be retirees to stay put. Their attitude is “I don’t golf; I don’t fish,” Melillo said. “I plan to continue to work until I go to the barn.”

Ripple effect

If oil prices stay low and companies continue to make cutbacks, the broader economic consequences could be devastating — especially in energy-rich Texas. Melillo, who is based in the Dallas-Fort Worth region, estimates that one oil and gas job lost in Texas has a spending power impact equivalent to about three jobs lost in any other industry. Though American drivers may be excited about low prices at the gas pump, they may not realize the long-term implications of those savings, he said. If crude prices drop low enough that energy firms can’t hire or retain their talent, they won’t be able to quickly ramp up production once supply inevitably dwindles. With limited supply eventually comes a rebound in pump prices. “They just don’t realize the effect it truly has,” Melillo said.

Real estate — particularly in Houston — could be affected, as well. Because the housing market moves slowly, the impacts will take a while to see, but Michele Marano, a real estate agent who targets professionals in the energy corridor, said there’s already been a shift. Until recently, Houston sellers have been in the driver’s seat: They would name a price, and they would get it, she said. But last fall, Marano was working for an oil and gas CEO living in The Woodlands who ended up selling his house for about $30,000 less than the value of comparable homes in his neighborhood. Because of Marano’s history as an energy commodity broker, her client trusted her advice to sell as quickly as possible.

Earlier this month, a few houses in the same area were listed for $50,000 below comps, Marano said. And she expects some of those homes will ultimately sell for much less. Though she doesn’t foresee an economic bloodbath like the one that followed the oil bust in the 1980s or the stock market collapse in 2008, Marano said she’s staying alert to new developments. “When the layoffs come, that’s when things get ugly,” she said.

Looking ahead

In the months to come, companies need to be dedicating a lot of thought to their talent pipeline, said Graeme Lewis, group commercial director for Air Energi. Lewis recently worked with a client awaiting a final investment decision on an African LNG project. He went into great detail with the company on its staffing needs and saw that candidates with its desired skill sets were in short supply. Those positions would need to be filled in 2016. “If not, then they’re going to be in trouble,” he said. At the same time, the decline in activity presents companies with a chance to streamline their payrolls for more sustainable long-term performance. “We’ll end up coming out of it a lot fitter,” Groeneveld said.