In the years following the recession that started in 2008, the oil and gas sector was one of the few positives for the economy. The fracking revolution was increasing job numbers, but all this ended in 2015 as oil prices hit rock bottom.
Globally more than 258,000 energy workers have been laid off, and the energy sector is expected to have another bout of job cuts in 2016 amid more bankruptcies according to analysts. Most headlines though focus on job cuts done by global giants like Chevron, Halliburton and Shell. While these companies have had a slew of job cuts with more to follow, it has been especially rough for exploration and production jobs.
“The closer you are to the wellhead, the quicker you are to lose your job. Those are the kind of jobs that get hit first because it’s where a company can quickly make cuts,” according to Houston-based energy consultant John Graves of Graves & Co. In Texas alone these types of companies have cut at least 60,000 jobs or roughly one-fifth of their workforce.
Karr Ingham, a petroleum analyst for the Texas Alliance of Energy Producers, expects it to get worse. “Expenses have to be cut pretty dramatically and that means that employees on payrolls have to go,” according to Ingham amid revenue losses up to 70% for oil companies. Dan Heckman, national investment consultant for U.S. Bank Wealth Management, expects the pain to continue. “Many of these companies are in negative cash flow, and that’s not a sustainable dynamic,” according to Heckman.
The current US unemployment rate for the oil, gas and mining sector is 8.5% but could top 10% by February, Heckman projected. Meanwhile, Saudi Arabia refuses to reduce production leading to a game of chicken that is closely watched by analysts. However, a prolonged period of low oil prices is expected, and this provides little hope for a quick turnaround.
While most analysts expect oil prices to stabilize in 2016, they are however not expected to rise much until the second half of the year. There is some good news though in the US energy sector as mid-stream companies, so far have only accounted for 0.4% of job cuts.
Workers for companies involved in service, exploration and production, drilling and supply, still have a bleak future. Not only because of further job cuts but also employers slashing wages to stay afloat. “Most employees understand the need for that because they get to keep their jobs. They go along with it because at this point in the energy industry where else would they go,” according to Graves.