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Leading Shale Driller Starts Mass Lay-offs Eliminating Thousands Of US Jobs

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Wednesday afternoon, Upstreamonline reported that Helmerich & Payne has started a round of steep lay-offs that will impact thousands of land drilling crewmen. Anecdotally, we have been hearing about land drilling lay-offs in the Permian Basin by Helmerich & Payne for several weeks now.

The Oklahoma-based company employs about 10,350 people in its provision of land rigs for shale plays and 1,560 people in its international operations.


UPDATE: On Thursday morning, H&P management spoke about these lay-offs. Before continuing with the rest of yesterday’s post, here are some of the key takeaways from this discussion:

  • Update 1: Thursday 10:20 AM: H&P CEO confirms this post, says >2,000 positions to be cut this year. Read more…
  • Update 2: Thursday 10:40 AM: H&P CEO says he has no idea where things will bottom as his rig count plummets. Read more…
  • Update 3: Thursday 11:00 AM: H&P CEO says “our goal will be to hang on to our best most experienced people through the downturn.” Read more…

3,000 H&P Jobs At Risk

For historical context, Helmerich & Payne cut its workforce by about 2,000 jobs in the 2008/2009 downturn. Its lay-offs in 2015 could be even steeper as its staff is much larger now. Today, the company employs about 11,900 people vs. 7,400 going into the 2008/2009 downturn.

Applying the same percentage cut as in 2008/2009, Helmerich & Payne could let as many as 3,000 people go this year if the prior downturn serves as a guide. Most of the cuts in 2009 came in US operations.

Three weeks ago, Helmerich & Payne communicated the pain it was already feeling when it announced 60 of its rigs would be going idle. That early slide in rig utilization alone was probably good for a thousand rig job cuts, and conditions have deteriorated further since then.

Helmerich & Payne will host a conference call tomorrow morning at 10am Central to discuss its outlook and we expect full details to be released at that time. To listen dial 1-877-876-9177 and ask for the Helmerich call. We’ll be back with full coverage of additional details on Oilpro after the call. Our calls to Helmerich & Payne requesting comments from the company on today’s reports have not yet been returned.

25% Of The US Land Drilling Workforce Could Be Cut During 2015 – That’s ~25,000 Jobs

By drilling workforce, we mean specifically the crews that run onshore drilling rigs (floor hands, rig managers, and drillers) and the support staff for these rigs (R&M, rig construction, and office functions). This does not include frac crewmen or ancillary oilfield services, which will also see reductions.

The lion’s share of the losses will be felt in the US, but Canada and int’l ops are not safe either. Unfortunately, land drilling rigs are both early cycle movers and labor intensive. This means lay-offs will come hard and fast this year in the drilling sector.

Between the Big 3 land drillers – Patterson-UTI, Helmerich & Payne, and Nabors Industries – we expect 12,250 drilling-related staff will be laid off this year. We estimate the Big 3 currently employ almost 50,000 people.

US Land Rig Count Vs. Total Estimated Land Contract Driller Headcountenter image description here

Beyond the Big 3, we expect a further 11,000+ US drilling jobs will be cut. This may seem light as the Big 3 only control 40% US rig count, while smaller contractors run 60% of US rigs. But the Big 3 are more diversified (int’l ops and pressure pumping) and also have more overhead staff than the host of smaller contractors who will also be stacking rigs this year.

All together, we expect around 25,000 drilling jobs will be lost during this downturn – about a quarter of the estimated headcount in the North American land drilling rig industry.

Where Could We Be Wrong?

The die is largely cast on headcount reductions during 1Q. But with companies taking their business planning quarter by quarter, if oil prices can rebound back into the $65-$70 range by 2Q15, many jobs will be saved. If oil prices flat-line here or continue to trend down for the rest of the year, our forecast will either prove accurate or overly optimistic.

Forecasting Methodology Explanation (For Those Interested In The Details)

So how do we arrive at the forecast that 25% of the US drilling workforce will be cut? We start with historical precedent, and then use our rig count forecast for 2015 to derive this estimate. A thought process outline follows.

First the historical precedent. We went back and tallied up the total headcount of the Big 3 US land drillers since 2006. These companies laid-off 13,000 workers, 1/3rd of their workforce, during the 2008/2009 downturn. This reduction tracked an 800 rig reduction in drilling activity. In that downturn, more of the rigs were performing simpler operations – labor intensity is up since 2009 thanks to the spread of shale.

Based on what we know about E&P capex budgets (down 20-40%) and our view on oil prices in the medium-term, we are now forecasting a US land rig count decline of 650 rigs during 2015. We combined this expected reduction with the historical precedent on job cuts in 2008/2009 and our estimated headcount for the land drilling business (about 100,000) to derive an estimate for what industry-wide lay-offs might look like this year.

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