Layoffs, losses mount as oil braces for more
Thousands more oil and gas workers are being laid off as losses mount for an industry that could see drilling activity slashed by 60 percent amid a crushing falloff of demand.
Data from the Texas Workforce Commission show that 13 companies have laid off 2,525 workers since April 13.
The service sector, which includes drilling rig operators, hydraulic fracturing crews and manufacturing, took the hardest hit. But the layoffs also include 125 jobs cut by fuel distributors Sun Coast Resources in Midland and Sunoco LP in Odessa. The companies’ tanker trucks haul gasoline, diesel and other refined products from storage depots to gas stations across West Texas.
Both companies blamed their layoffs on record low oil prices and coronavirus-related lockdown orders that are destroying demand for their products and services. Patrick DeHaan, a fuel markets expert with gasoline price monitoring service GasBuddy, says the layoffs come as gasoline sales have fallen by 50 to 70 percent across the U.S.
“It shouldn’t be unexpected given the situation,” DeHaan said. “Americans are simply consuming a fraction of the gasoline that they normally do.”
The industry’s pain extends beyond the truck yards to the oil wells.
Houston drilling rig operator Patterson-UTI said Thursday that it’s bracing for a 60 percent drop in oil field activity after losing $435 million in the first quarter, compared with a loss of $28.6 million a year earlier. It reported revenue of $446 million, down 37 percent from $704 million in the first quarter of 2019.
Patterson-UTI, like other companies in the industry, said the loss was a result of reducing the value of assets by $406 million as oil prices collapsed during the quarter. The company has 123
drilling rigs in the field, but CEO Andy Hendricks says he expects customers — the exploration and production companies — to cut their activity with oil prices and demand at critical lows.
Production companies have slashed spending for the past three months and put pressure on companies such as Patterson-UTI, which has closed some offices, consolidated operations and eliminated a layer of management. The company also halved its quarterly dividend to 2 cents per share.
Considered to be critical infrastructure by the federal government, PattersonUTI’s drilling rigs and crews are allowed to continue operating in the oil fields.
There are 602 active drilling rigs deployed across the United States, according to Baker Hughes. But that number is expected to fall by another 150 to 200 in the coming months, according to a Wednesday estimate from Houston investment bank Tudor, Pickering, Holt & Co.
The reduction in drilling rigs will be paired with reductions in the number of hydraulic fracturing fleets.
About 150 frac fleets are in operation in shale plays in North America, but Chase Mulvehill, an oil field service company analyst with Bank of America, says that number will tumble into the 80s by the third quarter.
“As we start shutting in production, obviously you’re not incentivized to complete wells,” Mulvehill said. “As that happens, you’ll see continued and sharp declines in frac activity, which will take the frac crew count below 100.”