Despite strong drilling activity, record natural gas and oil prices and the largest cash flow in industry history, employment by the largest U.S.-based producers declined 4.1% in 2004, the 20th annual decline in the past 23 years, according to consultant John S. Herold Inc.
Among the top 25 producers (and their successors) that Herold has tracked since 1974, almost 120,000 positions have been eliminated since 1999. In 2004, employee head count among the firms fell by more than 21,000 jobs to just over 514,000. Since the 1981 oil price peak, the largest producers have shed more than 1.11 million employees, according to the Herold analysis.
"Our findings are quite surprising," the report said. "The authors anticipated that in these 'best of times' in the petroleum industry, the increasing activity levels of the leading public companies would be manifest in a slight rise in energy industry headcount, or at the very least, a flat personnel roster. Not so. We found that oil companies continued to wield the 'human hatchet.'"
The study was last updated in 1999, and the original group of 25 companies has been whittled down to 15 because of mergers and acquisitions. Herold initially chose the group of 25 based on the Energy Information Administration's "Performance Profiles of Major Energy Producers" as guidance. It added other companies as some gained in prominence.
"The oil industry faces a Herculean task in overcoming its reputation for brutal treatment of professionals during the past two decades of downsizing," said Herold CEO Arthur L Smith. "Our finding suggests that unless oil and gas companies take drastic steps to reverse the 'brain drain' of the energy industry, a severe personnel crunch is preordained."
Smith that "faced with unrelenting pressure to replace production and find and develop petroleum reserves in both the remote regions of the world and in mature U.S. basins, we wonder if the industry has the luxury of time to recover from its mistakes of the past."
The Herold report took issue with the U.S. Department of Labor's (DOL) current job outlook, which extrapolates the recent past, and estimates that oil and gas extraction industry employment will fall by 28% between 2002 and 2012, with domestic employment contracting from 123,000 jobs to roughly 89,000 positions in 2012.
"Can you blame a petroleum engineer who graduated in the mid-1980s -- bruised and battered over the years by layoffs and endless job searches -- from dissuading his children from entering the oil patch now despite the current good times?" asked Aliza Fan, co-author of the Herold study. "We disagree with the DOL and see extremely strong growth prospects in the years ahead for oil and gas personnel in all facets of the industry - from the wellhead to the executive suite."
The Herold report recognized producers' needs to streamline operations and reduce overhead, as well as the ability of technological advances in drilling, completion techniques and specialized outsourcing to increase productivity and reduce the need for full-time manpower. The Herold data indicate a key measure of oil company productivity, EBITDA (earnings before interest, taxes, depreciation and amortization) per employee, has increased at a 10.6% compound average annual rate among the top companies since 1994.
In the past 10 years, the study found that ExxonMobil "has clearly been one of the most effective among its integrated oil peers in squeezing more productivity out of fewer workers." ExxonMobil's EBITDA/employee grew at a 12.3% compound rate over the past 10 years, reaching $444,000 per employee in 2004. Occidental Petroleum (25% 10-year growth to $812,000/employee) and Total (16.5% to $266,000) posted high growth rates over the period, having started from a lower base.
Profitability productivity leaders in 2004 were large North American independents Burlington Resources, at almost $1.9 million in EBITDA/employee, and Anadarko Petroleum Corp., registering more than $1.3 million/employee.
Although the study showed that overall college enrollment in geology, geophysics and petroleum engineering studies has fallen 26% since 1999 -- 44% since 1986 at the Colorado School of Mines -- there are "encouraging signals of a nascent turnaround."
Among the findings were Royal Dutch/Shell Group's January announcement of an intention to hire more than 1,000 petroleum engineers to reinforce exploration and production operations. Herold also reported an American Association of Petroleum Geologists survey showing that entry-level geologists earn an average of $65,600 per year, a 24% increase since 1999 compared with an average 10% rise among all experience levels.
U.S. Bureau of Labor Statistics data also indicate that average wage and salary earnings in the oil and gas extraction industry are higher than other industries, with workers paid an average of $19.27/hour in 2002 compared with $14.95/hour in other industries.
Several universities also are expanding their programs, according to Herold. There is expansion of Texas Tech Energy Commerce's program from 12 students in 2003 to 60 this year, as well as plans by the University of Houston, which used a new $40 million grant from the former chairman of AIM Investments to expand its energy curricula and teaching staff. Herold also pointed to initiatives at Duke University, Stanford University and trade organizations to educate the nation's school-age children with learning programs about opportunities available..
For more information on the study, visit www.herold.com.
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