Texas rigs haven’t gone completely silent. Some companies can still make a profit pumping oil out of West Texas wells. But the state’s recent boom came from shale plays, like the Eagle Ford in the south of the state. With producers earning less than $40 a barrel for crude, there’s simply no way to earn back what it costs to frack and drill such wells.
“We’re seeing declines in population across these towns in south Texas,” says Ed Hirs, an energy economist at the University of Houston.
For nearly eight years, high-paying jobs grew at a blistering pace across the region, long one of the poorest in the state. Now companies are shutting down operations, and those jobs are vanishing. “And until the price returns to a level above $75, $85, $95 a barrel,” Hirs says, “we won’t see a complete reemployment of everybody who’s left.”
So people are leaving — not just south Texas, but the industry — in search of work. Some will come back when the price of oil recovers. But this is an industry where roughly 70 percent of the workforce is over age 50. That’s the legacy of weak hiring during the oil bust of the 1980s and 1990s.
“I think this is going to be an acute problem in a couple of years’ time. I think it’s going to come bite us extremely hard,” says Tobias Read, CEO of Swift Worldwide Resources, an energy recruiting firm based in Houston. “Many of the people we’re losing today through the industry and that have been let go are the highest skilled and the highest remunerated and just happen to be the older people in the industry who we’ve relied on.”
Two years ago, the energy sector’s big concern was a shortage of skilled workers. Companies were scrambling to train up a new generation of engineers and geologists, pipefitters and project managers, to replace those they were about to lose.
“They’ve spent a lot of time retaining, recruiting, and training talent,” says Chad Hesters, who runs the Houston office of recruiting firm Korn Ferry. “They don’t want to see that talent leave. It’s incredibly expensive to have people you’ve spent years training walk out the door.”
Many firms are trying creative approaches to reduce labor costs while holding onto key employees, such as offering unpaid sabbaticals. A few, such as Canadian Natural Resources, based in Calgary, are cutting wages and salaries — paying everyone less, but making sure that everyone keeps their jobs.
“You almost have to applaud the sentiment behind it,” says Karr Ingham, petroleum economist for the Texas Alliance of Energy Producers. He says that, for most companies, Canadian’s approach is just not an option.
“Even if they’re managing to hold their production at some sort of constant level,” Ingham says, “prices are down by 60 percent in terms of crude oil, so the revenue is not there, it’s simply not there to support anything close to a payroll cost that you had a year ago.”
Oil and gas companies have laid off more than 56,000 people since December of last year in Texas alone. Worldwide, job cuts have climbed into the hundreds of thousands. The cuts aren’t likely to end until the price of crude starts to recover. These days, the mantra in the industry is “lower for longer.” Depending on whom you ask, “longer” could be anytime from a year away to the end of the decade.