The low price of crude oil is forcing many oil & gas industry players to rethink their mid-term strategy. So far more than 1,000 oil rigs have suspended operations, while more than $100 billion has been slashed from expenses. As a result, more than 250,000 professionals have lost their job since the oil price started to fall last year, a trend which is expected to continue as the price remains around the $40 a barrel level.
Since 2014 the oil price has more than halved, a development that has forced companies in the oil & gas to take a range of painful measures. The downturn has seen more than $100 billion in spending slashed – so far the industry has put more than 1,000 rigs on idle, with only around 500 of the more than 1,600 active before the recent dip in oil price hit, still operational. According to a recent study from Graves & Co. a boutique US-based consultancy focused on the oil & gas sector*, the austerity measures have had a massive knock-on effect on the labour market, with so far more than 250,000 jobs lost in the industry’s value chain.
Graves, who founded the advisory firm in 1996, says he is surprised that it has gotten to this point already, stating that personnel losses at oil services, drilling and supply companies account for 79% of the layoffs.
The news for oil & gas sector workers is however not becoming brighter, with a further 10 rigs in the idled last week. The number of active rigs has now reached a 5-year low. While the downturn hasn’t reached the levels of the 1980’s oil crisis, when Texas alone saw 240,000 jobs cut, the long term outlook remains relatively subdued, says Graves. "It’s going to get worse before it gets better.”
An analysis by Aon earlier this year revealed that the low oil price is also bad news for businesses in oil producing countries. Such countries run larger risks of running into financial problems, which increases the probability of political meddling in the economy and problems with payments. For industries outside oil & gas, however, sustained lower oil price can in fact benefit economic productivity. According to a recent analysis from PwC, oil prices of around $50 per barrel could boost the UK’s GDP by 1% by 2020, adding 91,000 jobs.
* Houston-based Graves & Co provides transaction advisory and operational support to the upstream oil & gas industry. The firm focuses predominantly on buy-side advisory, advising on among others due diligence, acquisitions of production properties, negotiations and documentation for joint venture. In recent years the firm’s services have expanded to include oilfield service sector research and analysis.