James Alexander, Procorre, explores what caused the European upstream oil and gas industry downturn and suggests ways that skilled workers can adapt to ride the wave of these increasingly uncertain times.
The price of crude oil and natural gas has been steadily dropping since June 2014 after nearly five years of stability. Less than a year later, upstream oil and gas companies were facing a 50% drop in revenues as prices continued to dip, partly due to factors surrounding supply and demand and partly because – cyclically-speaking – a ‘lull’ was due.
Energy demand is closely linked to global economic activity and the time of year it is, whilst supply can be affected by adverse, or unexpected, weather conditions and geopolitical unrest. Whilst these were certainly factors, in 2014, it was a failure to reach an agreement at a meeting in Vienna on production curbs which sent the price plummeting.
Consistent with the reaction to major price declines in the 1980s, companies quickly responded by implementing strategies that would improve production efficiency and cost. They cut capital expenditure (Capex), cut operational expenditure (Opex) and most damaging of all, significantly reduced headcount. Over the last 18 months, it is thought somewhere in the region of 270 000 jobs have been lost in the industry, and this figure is rising.
According to Oil and Gas UK’s Economic Report 2015, ‘exploration for new resources has fallen to its lowest level since the 1970s and, with so few new projects gaining approval, capital investment is expected to drop from £14.8 billion (2014) by £2 - 4 billion in each of the next three years.’ This drop, and the transformation needed to restore upstream investment and the wider industry, brings with it some difficult decisions that are likely to affect many lives for years to come.
What does this mean for Europe?
Europe has certainly suffered a fair share of the pain. In fact, across Europe alone, tens of thousands of people have lost their jobs over the past two years as oil and gas demand continues to fall. This is largely due to structural shifts in the European economy, changing consumption patterns and progress being made in renewable energy.
It has been well documented in recent weeks that a further 23 000 people who work in the North Sea upstream oil and gas industry – the majority of whom are from the UK and Europe – will lose their jobs between now and 2020. However, over the same period, it is also thought some 12 000 jobs will be created as the impact of the decline is offset by growing supply chain opportunities in the export market, the need to decommission assets and new prospects for an onshore shale industry. This, coupled with a number of advanced technologies driving the upstream oil and gas industry, means skilled professionals have a strong chance of remaining in employment and keeping the European industry afloat.
For those looking to try their hand at a new profession within the energy sector, Europe is seeing its renewables industry thrive. Countries like Scotland, Denmark and Sweden are driving the shift from fossil fuels to cleaner and cheaper renewable energies like wind, solar and biomass, and in turn creating a host of job opportunities for those able to transfer their skills.
Despite experiencing the highest number of job cuts the industry has ever seen, there are still a number of options for the thousands of people looking to work in oil and gas, and importantly, those willing to adapt their skills to meet companies’ new expectations.
One option to consider is whether to become a contractor. For companies that are heavily reducing their permanent staff numbers, contractors offer viable solutions when projects still need to remain operational. Using contract staff provides skilled consultants with the opportunities they need whilst giving the company the flexibility they require to keep costs low.
Even though the vast number of job losses have been and will continue to be in drilling operations, we are still seeing demand for contract finance and accounting professionals, legal advisors, engineers and geoscientists throughout the industry - and particularly in Europe.
While the downturn is affecting some professions, it also helping to drive advanced technologies that boost operational efficiencies. For example, one area that is on the rise in Europe is the use of measurement-while-drilling (MWD) and logging-while-drilling (LWD) tools, which collect data to improve drilling accuracy. This is in turn creating a demand for skilled industry professionals who can analyse data which can then be used to perform statistical risk analysis for future well operations.
In Europe there are a number of businesses which offer MWD and LWD services to the industry and that offer contract positions for those looking for the benefits of consulting over permanent employment. These types of advancing technologies are creating opportunities for those with backgrounds in field operations, geophysics and geology, as well as reservoir and completions engineers.
For other drilling professionals, extended reach drilling (ERD) might be an option they want to consider. Rosneft, part of the Sakhalin-1 consortium, announced last year that it had finished drilling the world’s longest well at Chayvo field, which lies northeast of Russia’s Sakhalin Island. This and other ERD projects in Europe are generating jobs for contractors where typical oil rigs are not.
Live opportunities for contractors
Whilst many European companies are significantly reducing upstream Capex and headcount, some companies have stuck to their guns and are carrying on with longstanding plans to develop certain oilfields while they ride out the current market conditions. Statoil, for example, has just announced it has started production drilling at its flagship Johan Sverdrup development in Norway’s part of the North Sea. It is likely that between now and 2019, when up to 380 000 boe/d are expected to be produced (it is currently in the pre-drilling stage), many hundreds of contractors will be required across a vast range of disciplines.
In the UK, despite a contraction in employment of approximately 15% since 2014, four new fields came on-stream that year, bringing approximately 190 million barrels of oil equivalent (BOE) into production. The Department of Environment and Climate Change (DECC) is also committing on average £3 - 4 billion per year this year and next in upstream investment for new developments, which at the very least will stave off some job losses.
Edited from an article by James Alexander, originally published in the May 2016 issue of Oilfield Technology.
Read the article online at: https://www.oilfieldtechnology.com/special-reports/30052016/adapting-to-adversity/