Oil and Gas Industry Hammered by COVID-19

June 9, 2020
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Author: Glenn Hunter

Already reeling from a weak market caused by a production glut, the U.S. oil and gas industry was knocked to its knees by COVID-19. Plummeting demand globally has led to the loss of tens of thousands of jobs, write-offs and budget cuts by producers, a rash of bankruptcies and the idling of hundreds of oil and gas rigs. In recent weeks, however, there have been some signs of recovery for the industry.

Oil and gas prices plummeted as demand waned during the COVID-19 pandemic.

According to Houston-based Baker Hughes, an oilfield services firm, there are now 301 operating oil and gas rigs in the U.S., compared to about 800 last year. More than 40% of the active rigs are in Texas, whose Permian Basin (extending from West Texas to southeast New Mexico) is the biggest petroleum-producing shale basin in the country. Other major oil and gas shale plays include the Appalachian Basin in Ohio, Pennsylvania and West Virginia; the Bakken in Montana and North Dakota; and the Haynesville in Texas and Louisiana.

With oil prices per barrel now in the high-$30s – down from $60 a barrel in January and a far cry from the $100 per barrel last seen six years ago – energy companies of all stripes are slashing their payrolls and focusing on capital efficiency. Chevron, for example, is planning 10% to 15% cuts in its global workforce this year as it pares its capital spending by one-third. At least 17 small oil and gas producers already have filed for Chapter 11 bankruptcy in 2020, and analysts say the number could reach more than 70 by December.

The turmoil has affected oilfield service companies as well. In Houston, arguably the country’s energy capital, Halliburton furloughed 3,500 workers at its headquarters. Baker Hughes and Schlumberger also cut their payrolls and budgets. According to a survey of mainly Texas employees conducted by the University of Houston, 53% of oil and gas workers are worried about losing their jobs, and nearly 40% fret they won’t be able to pay their mortgages and other bills in the next 12 months.

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Mounting Job Losses in the Extraction and Support Subsectors

Oil and gas workers are classified by the U.S. Bureau of Labor Statistics (BLS) under its Mining, Quarrying and Oil and Gas Extraction sector, part of the Natural Resources and Mining supersector. The BLS says jobs in the Oil and Gas Extraction subsector fell from 155,800 in January 2020 to 146,600 in May, while jobs in the Support Activities for Mining subsector, which includes support services for oil and gas extraction, dwindled from 312,000 in January to 253,900 in May. Hourly earnings of all employees in the Oil and Gas Extraction subsector averaged $48.23 in April. Average hourly earnings in the Support Activities for Mining subsector were $33.42.

The latest employment figures are in sharp contrast to those in 2014, when oil prices hit a high of $107.95 a barrel before crashing to just $44.08 in early 2015 due to oversupply and lack of demand. Oil and Gas Extraction jobs had increased to as many as 200,800 in 2014, and employment in the Support Activities for Mining subsector rose to a high of 444,200 the same year. Extraction jobs eventually fell to a low of 141,300 in 2018, while Support Activities employment bottomed out at 254,300 jobs in 2016, before both subsectors embarked on a gradual recovery.

The Way Forward

After driving, flying and shipping were severely curtailed for months this year due to the pandemic, the oil patch nonetheless is cautiously optimistic about signs of a possible rebound as U.S. states and other countries reopen and spur more energy demand. The price per barrel of oil has risen some in recent weeks, for example. EOG Resources, America’s No. 1 shale-focused producer, said it would accelerate its output in the year’s second half. Permian producer Parsley Energy is turning some of its wells back on, and the rate of “shut-in” wells in the Bakken play has begun to slow.

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