Did We Get it Right this Time?
Mar 4th, 15
From a Publication: GEOLOGIC News A Message from the President: Hal Miller 1st Edition 2015
Anyone who works in or follows the oil and gas industry knows that our business is cyclical and high price environments do not last indefinitely. Despite the surprisingly precipitous price drop over the past several months, those of us who have been around for a few decades recognize the symptoms that accompany a price slump: restricted budgets, falling rig counts and staff reductions for example. This will come as a rude shock to those who have only recently joined the industry, but it is in fact commonplace in our business.
Remember the bumper sticker asking for one more boom and promising we will get it right this time? I think we can argue that the industry did not squander the past five years of strong prices. The vast improvements in expensive drilling and completion technologies that have opened the unconventional reservoir opportunities and deepwater environments around the world would not have happened, or at least not progressed as quickly, if 2009 prices had prevailed over the intervening years. Now the resulting dramatic increases in supply, even in the face of many potentially destabilizing geopolitical risks, are impacting the price to the detriment of the industry but to the benefit of the world’s many struggling economies.
As we have seen before, the dropping price environment began while the lagging cost cycle for oilfield services was still on the upswing. High demand for rigs and services results in equipment and manpower shortages, rising costs, and inevitably project delays and cost overruns. There is no countering the law of supply and demand, and there are voices in the industry suggesting that this correction is not just inevitable but necessary to bring costs back into line.
From the people perspective, the industry has been a significantly positive factor in offsetting unemployment in the US and around the world. Interestingly, the expansion of the industry was not the only driver this time, with the looming demographic factor known as the “Great Crew Change” forcing the industry to bring in new talent before the vast reservoir of knowledge residing in the “Baby Boomer” generation retires. Fifteen years ago it was primarily the majors, large independents and large service providers doing most of the hiring on campus. Today the hiring, driven by the Crew Change, spans companies of all sizes. Hopefully the industry will maintain steady hiring practices and continue to support the departments that are turning out high quality recruits.
The consulting business is often the “canary in the coal mine” during industry contractions. Companies release contractors as one of the first steps towards cost reductions. Staff reductions have now followed, adding to the “natural” attrition that occurred during 2014 through retirement of the baby boomers. Some companies are offering enhanced retirement packages to reduce staff from the top of the experience (and cost) ladder. Any acceleration of this drain on experience will be especially painful as the industry desperately needs mentors for the expanded ranks of millennials.
Consulting has in times past experienced a rebound effect when companies reduced staff but needed to backfill the ranks to get the work done without hiring new employees. Highly experienced and recently retired consultants are a great interim solution to making sure projects stay on track, not to mention continued mentoring of new professionals who will be desperately needed when the price inevitably cycles back up again.