‘The new normal:’ Lower oil prices mean fewer oil-related jobs

Posted 7/30/15

Local employment rates are down, but not out

The downturn in the price of oil led to a series of layoffs locally and globally since the market started turning sour several months ago.

“There is a ton of people on unemployment right now, and …

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‘The new normal:’ Lower oil prices mean fewer oil-related jobs

Posted

Part two of an ongoing series

The low price of oil is expected to be ongoing due to a saturated global market, and that is going to have a long-lasting impact on Big Horn Basin oil production and employment opportunities — but not quite in the way some may imagine.

Local employment rates are down, but not out

The downturn in the price of oil led to a series of layoffs locally and globally since the market started turning sour several months ago.

“There is a ton of people on unemployment right now, and when it runs out it will have an impact on this community,” said Rocky Mountain Oilfield Services owner Dan Groves. “There have been hundreds of layoffs — I mean, everyone is; the operators, the ones who operate the wells, are cutting everywhere they can, including their own people, and it’s having quite a trickle-down effect.”

Groves said he had to cut his staff of 12 employees down to eight in the last six months.

“I do see less investment activity in the Basin, and because of that there will be significantly fewer jobs needed to be done, and that leads to employment issues,” Tom Fitzsimmons said. Fitzsimmons is a commissioner on the Wyoming Oil and Gas Conservation Commission and serves as chairman of the Wyoming Enhanced Oil Recovery Commission.

Groves and former J&R Well Service Manager Jerry Herweyer both estimated one-third of the oil industry workers in the Big Horn Basin were laid off since the price started dropping last winter.

“They keep reducing the workforce, and those are the best-paying jobs in the county,” Groves said.

Activity has slowed down to the point that workers are being laid off, Fitzsimmons said.

“That is the new normal at these low prices,” Fitzsimmons said, anticipating that oil will remain in the $40-50 per barrel price range for the next 18 months.

The majority of the local layoffs occurred last winter, according to Herweyer.

“I haven’t heard of anyone else laying people off recently,” Herweyer said. “Everyone has downsized and cut hours.”

Groves said he is constantly adjusting his company’s numbers to keep things going.

“Been doing nothing but losing money, but I keep thinking it will get less and less bad — but we will see,” Groves said. “If I don’t get it done soon, we will be gone too,” Groves said.

On Thursday, the Houston Business Journal reported that Weatherford increased its targeted number of jobs to cut in 2015 to 10,000-11,000 employees — about 18 percent of its entire U.S. workforce. This total does not include the 7,000 employees who were cut out in 2014.

Weatherford reportedly shut down more than 60 of its facilities in the first half of 2015 and is expected to close 30 more by the end of the year.

Employment rates across the state

So far, Wyoming’s unemployment rate has been steady at 4.1 percent, said David Bullard, senior economist for the Wyoming Department of Workforce Services’ Research and Planning section.

“As oil prices decreased, we saw job losses in the oil and gas sector,” Bullard said, pointing to data on employment statistics and claims for unemployment insurance. “There is no question a large number of people have lost their jobs in oil and gas.”

The department works with data from a number of different sources. One is the employment statistics survey by the Bureau of Labor Statistics, and it shows employment in oil and gas is “down considerably” from where it was, Bullard said.

The most recent data available is from May of this year, and at that point employment was down by 3,600 jobs, or 13.3 percent, from May 2014 for the entire natural resources and mining sector in Wyoming.

“It is a large change, and it is affecting the statewide total employment,” Bullard said.

In May, the state’s total employment was up by 300 jobs, or a tenth of a percent, because the job losses in oil and gas are offsetting the gains in other sectors.

“It is a little puzzling where the rate holds steady, and there is a number of things that could be going on,” Bullard said.

Initial claims of 900 jobs lost in February decreased to 300 in June, he said.

The state’s employment rate is an estimate based on surveys, and employment status is based on the unemployed person’s place of residence.

When someone loses their job, they are more likely to move somewhere they can find employment, he said. Meanwhile, those who lost their jobs elsewhere and move back to Wyoming are counted as unemployed in Wyoming — basically, it’s not an exact figure, but more of a ballpark estimation.

“Obviously, not all of them leave,” Bullard said. 

Based on the claims for unemployment insurance, about 20-25 percent have out-of-state addresses.

The estimates from May of this year showed growth in a number of sectors, including leisure and hospitality.

“With lower gas prices, the tourism sector seems to be growing,” Bullard said.

Compared to last summer, the national average price of gas is roughly 35 percent lower than it was in 2014 — which adds up fast for families traveling long distances to visit Wyoming.

Estimates also showed an increase of 900 jobs in education and health services for Wyoming.

“It does seem consistent that some parts of the economy are growing,” Bullard said.

Overall, Wyoming is experiencing a job growth of almost 6,000 jobs despite losses in certain sectors. The state’s population growth tends to go up at the same rate as the job growth, he said.

“People move here for jobs and move away when they lose their jobs,” Bullard said.

The cause of it all

There is speculation that the low price of oil could be impacted by the ongoing nuclear deal in Iran, Herweyer and Groves both said in separate interviews.

“Nobody stopped producing, so supply is way out ahead of demand,” Herweyer said.

Iran has millions of barrels of oil a day sanctioned to where they can’t sell it, and if congressional action allows it, it will come off the market, Groves said.

“Oil (value) will cut in half again,” Groves said.

Depending on the outcome of the Iranian deal, the price of oil could drop down to $30 per barrel, Rep. David Northrup said.

If that happens, oil well production will likely shut down, and some oil wells will be sold to people who will run them until they break down completely.

“That has happened in this area before,” Northrup said. “The worst thing about this is the loss of income on the taxes.”

When oil was still selling for $60 per barrel, the projected loss for Wyoming was $200 million, Northrup said. At $48 per barrel, it’s likely to be much more.

The value of the American dollar on the global market is so strong that exporting nations don’t need as much of it, Fitzsimmons said. When interest rates increase and the American dollar loses value, the price of oil will be expected to go back up.

“We have such a strong dollar that, when you sell for $48 (per barrel), it is buying more than (it did) a year ago — it is a global commodity,” Fitzsimmons said.

The good news for Americans is that this means more buying power on imported goods.

As for oil, it is a different story.

Hundreds of developed wells have not been brought online in the Bakken and Eagle Ford Shale. Each of those wells cost a lot of money to develop, and their owners will bring them online to generate revenue, even if the market is already saturated and the price is down, Fitzsimmons said.

Right now, the United States consumes about 20 million barrels of oil each day, and the entire world consumes between 91-93 million barrels of oil daily. But, the supply is about 93.5 million barrels per day.

“There is an oversupply in the world market of crude oil, and prices are going to stay down until that demand outstrips supply, and we don’t see that happening soon in America because of all the wells that were drilled and not put online,” Fitzsimmons said.

Local production

Big Horn Basin rig counts haven’t come back up and there’s not much drilling activity in the area, Herweyer said. Statewide, the rig count is down from where it was a year ago too.

“I don’t expect it to get better until it comes up to $70 a barrel — and I don’t see that happening for another year or so,” Herweyer said.

Business had dropped by about 60 percent for J&R Well Service, and the average around the Basin is probably closer to 50 percent, Herweyer said.

“I don’t think anyone is hiring, period, in the oil industry,” Groves said. “It is going to impact everything in this area.”

McJunkin Red Man Corporation closed, and J&R Well Service has a “skeleton crew” compared to a year ago, when they had about 100 local employees, Groves said.

“All I do is take it a day at a time; we haven’t made a profit here — we are trying to survive, cutting everything short of cutting our electricity,” Groves said.

Rocky Mountain Oilfield Services works with pumps, completion tools, welding, fabricating and other services needed for oil production. Their level of business is a reflection of what is happening in the local oilfield industry.

Groves credited activity in Gillette and Montana with being able to keep in operation.

“If we tried to survive on local business, I couldn’t see a reason to keep the doors open,” Groves said. “I can tell you, business is way down.”

He estimated they are doing about 30 percent as much business now as they were a year ago. In other words, for every 100 projects they were involved in last year, it is now about 30.

The companies that were in debt have closed their doors in the oil industry, Groves said.

Whiting Oil and Gas sold all its property, and Fidelity is gone too, Groves said. Several oilfields were sold in the Thermopolis area as well.

Fitzsimmons said he had not heard of companies closing up shop, but he had heard of companies consolidating and joining forces to increase their value and reduce costs.

“I think this is the new normal for oil prices,” Fitzsimmons said.

“There are new people on those fields trying to make a profit, but they aren’t spending money,” Groves said. “Anyone in debt is getting out.”

As for the unemployed oilfield workers, there is no “getting out.”

“They are still hanging around and collecting unemployment, hoping things will change,” he said. “They are going to have to go somewhere where there is decent jobs — the oil industry has always cycled.”

About five or six job applications from unemployed oilfield workers are brought in to Rocky Mountain Oilfield Services each week. Some are from Powell residents who used to work in North Dakota, Groves said.

“A new group comes back every Friday without a job,” Groves said.

Normally, oilfield workers transition into the mining industry, but federal regulations on coal mining have slowed down employment opportunities there as well, he said.

“Obama is killing the coal industry, so mining in Gillette is worse off than the oil industry,” Groves said.

He suggested unemployed oilfield workers look into the construction industry, since it seems to be doing well for now.

“I don’t think it is doom and gloom; they are hard workers, and there are always jobs for a hard worker — whether it is in ag or construction, there are people looking for hard workers, and I believe the work ethic of our industry is as good as any,” Fitzsimmons said.

Big Horn Basin’s trump card — asphalt in the oil

Big Horn Basin’s oil is rich in asphalt, so it can be considered an energy product and a construction product, Fitzsimmons said. About 27-30 percent of the local oil has asphalt as a constituent.

“We have some saving graces,” Fitzsimmons said. “As long as we build roads and infrastructure, there is a market for that oil.”

Oil refineries have also increased their ability to process “heavy oil” like what’s found in the Big Horn Basin.

“There will be stability for Big Horn Basin oil,” Fitzsimmons said. “Ours is less valued than the West Texas oil because it is heavy, but it is going to have a demand for it in the lower-price markets.”

The key part about Big Horn Basin oil is it is a real shallow decline; it doesn’t fall away, and the wells in the Basin last for many, many decades, Fitzsimmons said.

“Although it is not valued high in the market, it is historic, and we will have it for many years to come and we need to be good stewards of those fields,” Fitzsimmons said.

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