By Velda Addison, Hart Energy
The year 2015 has begun in just as unsettling a manner as its predecessor ended with more talk of heightened production from the U.S. and elsewhere, plummeting oil prices and the potentially damaging consequences these could have on the oil and gas industry.
Attention on the uncertainty has even gone mainstream with the topic moving near the top of local newscasts in Houston, the world’s energy capital. There appears to be a growing focus on the possible effects on the economy instead of gasoline prices, and rightfully so considering several oil and gas companies have announced cutbacks and this could mean job cuts.
This, unfortunately, is already happening, and it’s happening worldwide.
In December, for example, Halliburton said it would lay off about 1,000 employees across multiple regions in the Eastern Hemisphere.
Just this week FuelFix reported that Antero Resources will lay off more than 250 contract brokers. Ensign Energy Services also said it will cut 700 jobs in California.
And these cutbacks will have ripple effects, just as previous downturns have spawned in the past.
These tumultuous times come as the market drowns in plentiful oil supplies. Production from the U.S. remains at record highs, thanks to technology such as the combination of hydraulic fracturing and horizontal drilling that enabled operators to release more oil and gas from shale formations. But a reluctance to cut back production, including by Organization of Petroleum Exporting Countries, has continued to drive down oil prices.
With production exceeding demand, crude oil prices fell from a monthly high of $112/bbl (Brent) in June to $62/bbl in December, according to the U.S. Energy Information Administration. West Texas Intermediate also plummeted from $105/bbl in June to $59/bbl in December.
Plentiful supplies are beneficial. No one can argue that the drop in gasoline prices is not a welcomed sight. Money saved at the pumps could be spent elsewhere, boosting other sectors of the economy.
But something has got to give in the oil and gas sector because companies’ budgets are being hit. And this could spread to the coffers of local, state and federal governments that are reliant on funds derived from oil and gas operations.
Financial expert Dawn Bennett said she expects that oil companies in the U.S. will begin to decrease production and limit construction of additional rigs soon.
“When the price of a barrel of oil drops to $60 or below, it’s much harder for these companies to turn a profit; given that the price of a barrel of oil fluctuates right around $60 today, there’s no doubt American companies are concerned,” Bennett said in press release. “Cutbacks in drilling and limits on rig construction will inevitably spell job losses for oil companies throughout America.”
Bennett mentioned BP’s plans to slash company expenses by $1 billion this year.
“Even though falling oil prices are a welcome sign to consumers and are perceived as an indication that oil production is booming, when we look at this trend from a global perspective, it might actually be reflective of weakening economies in other countries, which would eventually directly impact the United States via decreases in exports and spending,” Bennett continued.
This state of the industry brings to mind words from American writer Alvin Toffler. “Our technological powers increase, but the side effects and potential hazards also escalate.”
This is certainly true for the oil and gas industry today.
Contact the author, Velda Addison, at firstname.lastname@example.org.
2023-10-26 - Hess Corp.’s combined oil, gas and NGL production from onshore Bakken in this year’s third quarter is close to reaching its peak of 200,000 boe/d.
2023-10-12 - Empire Petroleum’s total capital spending of the Starbuck drilling program is expected to be between $20 million and $22 million.
2023-09-22 - U.S. oil rigs fell by eight to 507 this week, their lowest since February 2022, while gas rigs dropped by three to 118.
2023-10-06 - Drillers have cut active rigs for three quarters in a row in a delayed response to the sharp drop in prices since the middle of 2022.
2023-09-15 - Despite this week's rig increase, Baker Hughes said the total count was still down 122, or 16%, below this time last year.