Permanent Employees at the Top 50 Oilfield Service Providers

Turmoil wrought by the global pandemic has upended activity across the energy sector and led to massive layoffs, with staffing forecast to plummet by year’s end to its lowest level in more than a decade.

An analysis of the top 50 oilfield services (OFS) operators by Rystad Energy found staffing would decline and anticipated revenue per employee also heading south. The analysis tracked the permanent employee count of the OFS operators, including reported permanent employees at year-end. 

“OFS employment is now heading for the lowest numbers in the past decade as the Covid-19 pandemic continues to impact ongoing work and the frequency of new awards, both of which could take years to fully recover,” said Rystad’s Lein Manm Hansen, energy service analyst. “Nevertheless, some companies saw a bountiful 2019 in terms of inbound orders,” with the numbers in the first six months of 2020 indicating “that these companies have been more resilient.”

Rystad’s overall analysis found a sour picture for jobs, similar to the sharp downturn experienced in 2016. Since then, the OFS workforce has been nearly maintained at above 760,000 employees, “keeping a major cost driver — investment in human capital — at steady low levels.

“However, the downsizing expected this year is likely to result in the OFS industry experiencing the lowest total headcount in over a decade, which we estimate will amount to about 610,000 employees.”

OFS operators large and small, from Schlumberger Ltd. and Halliburton Co. on down, have laid off thousands of people in the past few months. The U.S. oilpatch basically shut down during the second quarter, with completions halted, rigs dropped and equipment stacked. Lower 48 drillers and pressure pumpers were seen bearing the brunt of the downturn. 

In the first four weeks of the downturn that began in March, Evercore ISI analyst James West noted that the U.S. land rig count had declined by 189 rigs. “In the 2014-2016 downturn, the largest four-week decline was an incredible 323 rig drop from January 23, 2015 to February 20, 2015,” he said.

The layoffs have ebbed as well curtailments end and rigs are raised. However, they continue.

Houston-based Seadrill Americas Inc., for example, recently notified the Texas Workforce Commission that it plans to lay off 168 employees assigned to its West Auriga drillship in the Gulf of Mexico. The mobile offshore unit, set to complete operations under its current contract, is going to be cold stacked, as it has been unable to secure work. Layoffs begin in October.

Rystad calculated revenue/employee as a company’s total yearly revenue divided by the number of employees by year-end. The parameter “provides an understanding of how efficiently service companies are able to utilize their employees,” the researchers said. “We consider this metric on a weighted average basis for the top service companies, which earned a total of over $200 billion in 2019.”

When Brent oil prices climbed above $100/bbl, companies historically earned about $300,000/employee or even more, Rystad noted. When oil prices have fallen, the revenue has dipped to as low as $250,000/employee, similar to the commodity price crash in 2016. 

“This year we expect revenue per employee will fall again, diving to around $260,000/employee from the stable levels seen in the past two years as revenues from the largest OFS companies plummet quicker than their respective headcounts do,” researchers said.

The revenue/employee may not fall as much as in the 2016 downturn because “this time around there are fewer redundancies in terms of human capital investment.”

For example, Schlumberger plans to lay off 21,000 employees, or around 20% of the workforce. It also anticipates a 25% year/year revenue decrease in 2020. 

“This will bring its revenue/employee to $290,000, more than a 7% decline compared to last year,” according to Rystad’s calculations.

The OFS operators that work in the Lower 48 began actively reducing staff last year as commodity prices stagnated. Revenue should continue to be pared “at an even quicker pace this year.”

The long lead times for offshore projects, meanwhile, point to employment trends that are usually less volatile. In addition, several offshore operators are diversifying, shifting toward more renewable projects. 

“This kind of involvement in other industries could provide a cushion for low oil prices,” said the researchers. “As a result, the offshore sector is expected to have a slight decrease in revenue per employee.”

Companies working in the North American onshore sector “will struggle more with the transition into new markets as their work is primarily focused on drilling and well service, which does not transfer as well to other industries beyond oil and gas.”

Whether massive backlogs could bolster revenue is uncertain. 

“New contract awards are poised to pick up toward the end of 2021 and 2022,” said researchers, “but until then, OFS companies must continue cutting costs, fighting for the few awards available, and diversifying into new markets.”