Rig Count Surges Again To 16-Month Highs (But Where's The Oil Industry Jobs)

For the third week in a row, the US oil rig count rose dramatically (up 15 to 583 - the highest since October 2015). This is the biggest 3-week surge in rig counts since April 2013... (the biggest 3-week percentage gain since Nov 2009)

 

Production continues to trend with rig count...

 

However, as exuberant as this number is, job gains are nowhere to be found as the robotization of the industry (amid more 'real' costs of capital) provide no help to Americans...

As Bloomberg notes, the addition of just 100 jobs to industry payrolls lags well behind the pace of the overall U.S. economy, which added 227,000 workers during the month. The growing use of robots and other efficiencies honed over the course of a 2 1/2 year market downturn means more work is getting done with fewer people. Confirming previous fears that robots are repacing roughnecks.

The inevitable advance of technology and automation has upended industries such as car manufacturing and food processing. Now robotics is making its way into the oil fields by helping drilling activities and putting together heavy pipes.

For companies, more automation would mean higher efficiency, safer operations, and ultimately, lower drilling and production costs. For oil rig workers, it would mean that part of the jobs lost during the oil price downturn would never return. Also, part of the new job openings would require a different type of skill set: for example, information technology and advanced computer skills.

But even if automation is expected to increase, and some day take over drilling sites and drillships, it is not the norm in the oil and gas industry today. While there have been early adopters, the oil and gas drilling business is still years away from becoming an automated activity.

Companies that had been lavishly spending on drilling at oil prices at $100 per barrel were too busy pumping oil and gas to think of efficiency and production costs. But the oil price bust has squeezed their budgets, and the firms are now seeking to cut costs while increasing efficiency.

Apart from reducing the human factor in drilling such as shifts or fatigue, or work-related accidents and incidents, automation can reduce headcount costs.

Automated drilling rigs may be able in the future to reduce the number of persons in a drilling crew by almost 40 percent, from 25 workers to 15 workers, Houston Chronicle’s Jordan Blum writes, quoting industry analysts.

Drilling company Nabors Industries expects that it may be able to reduce the size of the crew at each well site to around 5 people from 20 workers now if more automated drilling rigs are used, Bloomberg’s David Wethe says.

However, a sensitive issue such as workforce in an industry that had slashed a couple of hundred thousand jobs during the downturn has just become even more sensitive with the new U.S. administration.

“The Trump Administration will embrace the shale oil and gas revolution to bring jobs and prosperity to millions of Americans,” President Trump’s America First Energy Plan states.

So companies are likely to keep a low profile on how much staff costs they would be saving.

“They’ll more likely brag about the automation rather than these head counts,” James West, an analyst with investment bank Evercore ISI, told Bloomberg.

Automation is also likely to drive small-sized subcontractors doing jobs for larger companies out of business.

Although it is expected in the not-so-distant future, automated rigs will not be replacing en masse human workforce this year or next. Right now, there are many conventional under-utilized rigs, especially in offshore drilling, where companies had slashed exploration and drilling expenditure.

In land drilling, activity in the U.S. oil patch is picking up, and employment has recently shown the first signs of gains after more than two years of declines.

Total job growth in Texas is expected to rise from 1.6 percent in 2016 to around 2 percent in 2017, Dallas Fed assistant vice president and senior economist Keith Phillips said earlier this month.

“Job growth picked up in the second half of 2016 due to a stabilization of the energy sector,” Phillips noted.

Part of the jobs lost over the past two and a half years may never return due to increased automation, but the recovery of U.S. drilling may send companies hunting again for staff this year.

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