Rising oil production with fewer workers: Albertans can learn from Texas example

Technology tranforming oilfield: fracking, horizontal drilling, multiple wells from single pad on production side, digital tech on business side

Texas oil production is booming like never before, especially in the prolific Permian Basin, but just like Alberta, job numbers are not climbing at the same rate as output. Economist Karr Ingham says a new generation of technology is responsible and many oilfield jobs are not coming back. Just like Alberta.

Texas is the primary beneficiary of the “shale gale,” as IHS founder Daniel Yergin called it. From a low of just 1 milllion b/d in 2005, oil supply peaked at 4.2 million b/d (including condensate) in May and the US Energy Information Administration is forecasting a lot more growth over the next five to 10 years.

Source: EIA.

When prices peaked in late 2014, Texas was producing 3.5 million b/d of crude oil. Despite West Texas Intermediate prices falling below $30/b, supply kept growing during the downturn, according to the EIA.

Oilfield employment did not.

Ingham estimates that by the time employment bottomed out in early 2017 Texas had lost 231,500 total direct oil and gas jobs and the state economy lost four times that number of indirect jobs.

Upstream employment has begaun to recover, but is far below what levels that would have been expected during historic upturns given production levels.

As of midyear 2018, about 47,000 jobs have been added back to upstream oil and gas company payrolls following the loss of over 115,000 jobs over the course of the downturn, according to Ingham.

Karr Ingham, economist.

“Jobs have certainly been added back in the current expansion, and job growth continues moving into the second half of 2018,” he said. “But again, estimated upstream oil and gas employment as of June 2018 is down by over 68,000 jobs compared to peak industry employment levels in late-2014, and still crude oil production is at record levels and continues to climb.”

The Texas Alliance of Energy Producers staff economist attributes the decoupling of employment and production to aggressive innovation by industry.

“The efficiencies achieved by Texas oil and gas producers, service companies, and drilling companies are nothing short of stunning, and in part were borne of necessity during the deep contraction of 2015 and 2016. But this is what all industries strive to do – produce more with less and at lower costs,” Ingham said in a press release last week.

New technologies are affecting employment in two ways.

One, technologies that directly affect production. Ingham says the three big ones are hydraulic fracturing, horizontal drilling, and drilling multiple wells from a single pad, innovations that are a decade old.

Source: Energy Education.

“It used to be, not that long ago, that one rig meant one hole drilled. Now, because of pad drilling, you park a rig in a spot and you drill eight or 10 wells from there,” he said during an April interview.

There are plenty of smaller innovations, such as better drill bits, that are an important part of that leap forward in production efficiency.

Two, technologies that are transforming the oil and gas business model, the way companies conduct their business.

Those technologies include big data/analytics, artificial intelligence and machine learning, blockchain, automation, robotics, and much more.

The oil and gas business has always been about better technology, but the high tech equipment streaming into the market provide efficiencies that are a quantum leap ahead of the way industry did business in the past, Ingham says.

“It’s not something new, but it seems new to us because we’re watching it play out in a specific industry before our very eyes and more rapidly than ever before,” said Ingham. 

He says rapidly adopting new technologies to replace workers is now a permanent feature of the Texas oilfield.

Not surprisingly, the surplus of oilfield labour natural led to lower wages for those workers who managed to keep their jobs.

“When prices go down, producers and everyone involved in the industry has to find a way to cut costs. One of the ways they do that is just to shed themselves of hundreds of thousands of employees. And the ones that are left get paid less,” he said, pointing out that rates in the services sector have still not recovered, which prevents employers from paying higher wages.

There is no shortage of applicants for new oilfield jobs, says Ingham, even at lower wages: “Even though wages are lower than they were at their peak periods, they’re still higher than you can find in many other sectors of the Texas economy.”

The type of worker required by oilfield companies is also changing.

“As the industry becomes more technologically advanced, it requires at least at some levels more technically advanced skills,” he said. “Your skill set, which may have been just fine for that period of time where there were 150,000 more jobs out there than there are right now, now may be lacking because you may not be competitive.”

Ingham is upbeat about the future of the Texas oilfield given rising production and the improving financial health of shale oil companies.

Every one of his observations about the adoption of new technologies and rising labour productivity coupled with lower employment levels applies to Alberta, as I described in my long-form report, Technology and the 21st century energy worker: Where are the jobs? 

The takeaway for Albertans, the most important lesson, is that these changes are structural – baked into the cake, as it were. Every oil producing jurisdiction is wrestling with them.

Unemployed petroleum engineers and geoscientists roaming Calgary’s office towers looking for a job even as the provincial industry recovers is now a feature, not a bug, of the modern oil and gas economy.

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