Gravy Train Derails for Oil Workers Laid Off in Slump
By David Wethe, Jan 15, 2015
A Halliburton Co. worker walks through an Anadarko Petroleum Corp. hydraulic fracturing (fracking) site north of Dacono, Colorado. Halliburton said last month it was laying off 1,000 staff in the Eastern Hemisphere alone as it adapted to a shrinking business. | Photographer: Jamie Schwaberow/Bloomberg
The first thing oilfield geophysicist Emmanuel Osakwe noticed when he arrived back at work before 8 a.m. last month after a short vacation was all the darkened offices.
By that time of morning, the West Houston building of his oilfield services company was usually bustling with workers. A couple hours later, after a surprise call from Human Resources, Osakwe was adding to the emptiness: one of thousands of energy industry workers getting their pink slips as crude prices have plunged to less than $50 a barrel.
“For the oil and gas industry, it’s scary,” Osakwe said in an interview after he was laid off last month from a unit of Halliburton Co. (HAL), which he joined in September 2013. “I was blind to the ups and downs associated with the industry.”
It’s hard to blame him. The oil industry has been on a tear for most of the past decade, with just a brief timeout for the financial crisis. As of November, oil and gas companies employed 543,000 people across the U.S., a number that’s more than doubled from a decade ago, according to data kept by Rigzone, an employment company servicing the energy industry.
Stunned by the sudden plunge in the price of oil, energy companies have increasingly resorted to layoffs to cut costs since Christmas, shocking a new generation of workers, like Osakwe, unfamiliar with the industry’s historic boom and bust cycles.
Workers who entered the holiday season confident they had secure employment in one of the country’s safest havens now find themselves in shrinking workplaces with dimming prospects.
Short-lived Salvation
Sean Gross, 35, was over the moon when he secured a job in March last year at Schlumberger Ltd. (SLB), the world’s largest oilfield service company. He’d been laid off from a technology company and saw the oil business as his salvation.
“I was happy. My life was starting to take shape. Life was really, really, really, really good,” he said.
Oil prices started drifting down after hitting a high of $107 a barrel on June 20, but were still at $91 at the end of September. In the next few weeks the market buckled, falling to $80 by the end of October, to $66 by the end of November, and to $53 at the end of the year.
After hitting an intraday low of $44.20 on Jan. 13, oil traded higher today, rising to $49.62 at 9:15 a.m.
By December, Gross said talk was spreading through his Houston office about people losing their jobs “left and right.” Old-timers were suddenly retiring. Yet Gross still thought he’d be okay working in information technology far from the oilfield.
Not Again
As a newcomer to the energy industry, he didn’t realize how crashing oil prices would ripple through the company. He’d made it through another unsettling day and was in the parking lot, buckling on his motorcycle helmet for the ride home, when he looked up to see his boss running after him. “Hey Sean, I need to talk to you in my office.”
“Oh God, here I go again,” Gross recalled thinking as his boss delivered the news that he was getting laid off.
There’s no firm number yet on how many oil industry workers are losing their jobs, or how many more cuts might be coming. Halliburton said last month it was laying off 1,000 staff in the Eastern Hemisphere alone as it adapted to a shrinking business. Suncor Energy Inc., a Canadian oil company, said this week it will cut 1,000 jobs in 2015, a day after Royal Dutch Shell Plc (RDSA) said it would cut 300 in the region. Other companies have announced layoffs, but many are making the cuts without public fanfare.
The effects are being felt beyond the oil companies as cutbacks trickle down to suppliers and other companies that thrived along with $100 oil. The biggest drilling states — Texas, North Dakota, Louisiana, Oklahoma, Colorado — are expected to feel the most pain. The Dallas Federal Reserve bank estimates 140,000 jobs directly and indirectly tied to energy will be lost in Texas in 2015 because of low oil prices.
More Coming
Halliburton said it will continue to make adjustments to its workforce “based on current business conditions,” according to an e-mailed statement from Emily Mir, a spokeswoman. “While these reductions are difficult, we believe they are necessary to work through this challenging market,” she wrote.
Joao Felix, a spokesman for Schlumberger, declined to comment on the company’s layoff plans.
The job-hunting website Indeed.com has filled up with thousands of newly posted resumes from oil industry workers over the past six weeks. Among them is Scott Brewer, another industry transplant who had been working for big-box retailer Home Depot Inc. (HD) before jumping into the Texas oilfield four years ago with plans to bulk up his savings.
Burning Money
Brewer felt sure the boom times would churn along for at least another decade. “It was just consistently getting better,” he said.
His confidence was boosted by watching all the money the oil companies threw around. “They’d spend $20,000 like you and I spend $10 at McDonald’s,” he said, recalling catered meals at the drilling site featuring catfish, shrimp and lobster. “It was insane.”
The downturn hit everyone by surprise, said Brewer, who worked on wells mostly in South Texas for a small, private drilling technology company called Leam Drilling Systems LLC. After sitting at home a month waiting to be called to his next job, Brewer got a phone call at the end of December telling him he was no longer needed.
Jean Chapin, director of human resources, declined to say how many jobs Leam has had to cut.
‘Right Sizing’
“We are constantly in the process of trying to right-size our company,” Chapin said in a phone interview. “We do anticipate a continued downturn in domestic drilling activity.”
Like many in the industry, the oil business runs in the family for Svetlana Mazitova, 39, compounding her anxiety. A third-generation oil veteran, her Russian roots and two masters degrees in science and business helped her secure a job in June with a Houston-area company selling drilling equipment around the world.
Her husband, a native Texan, works for a company that sells the material drilling companies use to prop open the cracks in rock that allow oil and gas to flow. Her son is planning to start college in August to study engineering.
Mazitova’s company was hit first by U.S. and European economic sanctions against Russia, related to the nation’s conflict with Ukraine. The sanctions eliminated an important market, and when oil prices fell, the company had to lay off workers, including Mazitova. Now she’s worried for her husband’s job, too, and wondering how they’ll put her son through school if both are out of work.
Shrinking Future
“It’s terrifying,” said Mazitova. “I’m upset. I don’t know what to do for a future.”
For 31-year-old Australian engineer Adam Beaton, the oil crash has dashed hopes of returning to work in the U.S., where he lost his non-energy job — and his work visa — during the 2009 recession.
Beaton has been working back at home in Australia helping develop huge offshore oil and natural gas projects, hoping to transfer to the U.S. when his current project ended. Instead, he was laid off, with no prospects for getting more work.
As industry analysts and consultants increasingly predict that low oil prices could linger for years, laid off workers face a workplace where their chances of getting rehired by an energy company are remote. Many don’t plan to even try.
“I’m pretty much decided I’m not gonna do this oil thing again,” Brewer said.
New Reality
Osakwe is thinking of going back to school to broaden his physics training with an eye toward looking for “something that’s hard to do without.”
Scott Richardson, 47, of Longview, Texas, is still trying to get an energy job back. It’s what he knows best after 10 years in the oilfield, spending 300 days a year on the road bouncing from drilling site to drilling site. He drives a $120,000 Jaguar XFR-S, bought with the bounty of his well-paying job as a supervisor of an oilfield equipment operator.
That decade of prosperity made Richardson so complacent that he hadn’t been paying attention to the price of oil in early December when he quit his job in frustration over equipment problems.
“I honestly didn’t give it any thought,” he said. “The oilfield’s been good to me for 10 years.” When he cooled off and asked for his job back, his boss told him the position had been eliminated. Now he’s pounding the pavement looking for anything he can get, resigned to making a third of his old salary just to sign on somewhere.
“That car payment still comes around,” said Richardson, who now checks oil prices more than four times a day.
Repost from McClatchy News [Editor: Once again Curtis Tate has produced an incredible wide-ranging and deep analysis of current issues and developments around crude by rail in the US. This article can serve as a must-read primer on crude by rail. Note that the presentation below is only a rough copy – much better viewing on McClatchy’s website. – RS]
By Curtis Tate, December 31, 2014
TUSCALOOSA, Ala. — Every day, strings of black tank cars filled with crude oil roll slowly across a long wooden railroad bridge over the Black Warrior River.
Curtis Tate / McClatchyDecaying track and bridge conditions on the Alabama southern railroad could pose a risk to Tuscaloosa, Ala., population 95,000. Above, video of trains crossing the bridge.
The 116-year-old span is a landmark in this city of 95,000 people, home to the University of Alabama. Residents have proposed and gotten married next to the bridge. Children play under it. During Alabama football season, die-hard Crimson Tide fans set up camp in its shadow.
But with some timber pilings so badly rotted that you can stick your hand right through them, and a “MacGyver”-esque combination of plywood, concrete and plastic pipe employed to patch up others, the bridge demonstrates the limited ability of government and industry to manage the hidden risks of a sudden shift in energy production.
And it shows why communities nationwide are in danger.
“It may not happen today or tomorrow, but one day a town or a city is going to get wiped out,” said Larry Mann, one of the foremost authorities on rail safety, who as a legislative aide on Capitol Hill in 1970 was the principal author of the Federal Railroad Safety Act, which authorized the government to regulate the safety of railroads.
Almost overnight in 2010, trains began crisscrossing the country carrying an energy bounty that included millions of gallons of crude oil and ethanol. The nation’s fleet of tens of thousands of tank cars, coupled with a 140,000-mile network of rail lines, had emerged as a viable way to move these economically essential commodities. But few thought to step back and take a hard look at the industry’s readiness for the job.
It may not happen today or tomorrow, but one day a town or a city is going to get wiped out.
Larry Mann, principal author of the Federal Railroad Safety Act
In a series of stories, McClatchy has detailed how government and industry are playing catch-up to long-overdue safety improvements, from redesigning the tank cars that carry the oil to rebuilding the track and bridges over which the trains run.
Those efforts in the past year and a half may have spared life and property in many communities. But they came too late for Lac-Mégantic, Quebec, a Canadian lakeside resort town just across the border from Maine. A train derailment there on July 6, 2013, unleashed a torrent of burning crude oil into the town’s center. Forty-seven people were killed.
“Sometimes it takes a disaster to get elected officials and agencies to address problems that were out there,” said Rep. Michael Michaud, D-Maine, a member of the House of Representatives subcommittee that oversees railroads, pipelines and hazardous materials, who’s leaving Congress after six terms.
Other subsequent but nonfatal derailments in Aliceville, Ala., Casselton, N.D., and Lynchburg, Va., followed a familiar pattern: massive fires and spills, large-scale evacuations and local officials furious that they hadn’t been informed beforehand of such shipments.
The U.S. Department of Transportation will issue a set of new rules in January regarding the transportation of flammable liquids by rail.
“Safety is our top priority,” said Kevin Thompson, a spokesman for the Federal Railroad Administration,“both in the rule-making and through other immediate actions we have taken over the last year and a half.”
Nevertheless, McClatchy has identified other gaps in the oversight of crude by rail:
The Federal Railroad Administration entrusts bridge inspections to the railroads and doesn’t keep data on their condition, unlike its sister agency, the Federal Highway Administration, which does so for road bridges.
Most states don’t employ dedicated railroad bridge inspectors. Only California has begun developing a bridge inspection program.
The U.S. Department of Transportation concluded that crude oil from North Dakota’s Bakken shale region posed an elevated risk in rail transport, so regulators required railroads to notify state officials of large shipments of Bakken crude. However, the requirement excluded other kinds of oil increasingly transported by rail, including those from Canada, Texas, Wyoming, Colorado and Utah.
While railroads and refiners have taken steps to reserve the newest, sturdiest tank cars available for Bakken trains, they, too, have ruptured in derailments, and Bakken and other kinds of oil are likely to be moving around the country in a mix of older and newer cars for several more years.
We anticipate that crude by rail is going to stay over the long term
Kevin Birn, director of IHS Energy
Staying power
American railroads moved only 9,500 cars of crude oil in 2008 but more than 400,000 in 2013, according to industry figures. In the first seven months of 2014, trains carried 759,000 barrels a day – that’s more than 200,000 cars altogether – or 8 percent of the country’s oil production, according to the federal Energy Information Administration.
The energy boom, centered on North Dakota’s Bakken region, was made possible by hydraulic fracturing, or fracking, a horizontal drilling method that unlocks oil and gas trapped in rock formations. It was also made possible by the nation’s expansive rail system.
Crude by rail has become a profitable business for some of the world’s richest men. Warren Buffett, the billionaire investor, bought BNSF Railway in 2009. It’s since become the nation’s leading hauler of crude oil in trains. Bill Gates, the Microsoft founder and philanthropist, is the largest shareholder in Canadian National, the only rail company that has a direct route from oil-rich western Canada to the refinery-rich Gulf Coast.
Amid a worldwide slide in oil prices in recent weeks, crude by rail shows few signs of slowing down. The price per barrel of oil has dropped nearly 50 percent since last January. Still, the six largest North American railroads reported hauling a record 38,775 carloads of petroleum the second week of December.
“We anticipate that crude by rail is going to stay over the long term,” said Kevin Birn, director at IHS Energy, an energy information and analysis firm, and a co-author of a recent analysis of the trend.
Regulatory agencies and the rail industry may not have anticipated the sudden increase in crude oil moving by rail. However, government and industry had long known that most of the tank cars pressed into crude oil service had poor safety records. And after 180 years in business, U.S. railroads knew that track defects were a leading cause of derailments.
To be sure, railroads are taking corrective steps, including increased track inspections and reduced train speeds. They’ve endorsed stronger tank cars and funded beefed-up training for first responders.
Ed Greenberg, a spokesman for the Association of American Railroads, the industry’s principal trade group, said railroads began a “top-to-bottom review” of their operations after the Quebec accident.
“Every time there is an incident, the industry learns from what occurred and takes steps to address it through ongoing investments into rail infrastructure, as well as cutting-edge research and development,” he said. “The industry is committed to continuous improvement in actively moving forward at making rail transportation even safer.”
But the industry continues to resist other changes, including calls for more transparency. The dominant Eastern railroads, Norfolk Southern and CSX, sued Maryland to stop the state from releasing information to McClatchy about crude oil trains.
The industry also seeks affirmation from the courts that only the federal government has the power to regulate railroads. The dominant Western carriers, BNSF and Union Pacific, joined by the Association of American Railroads, sued California over a state law that requires them to develop comprehensive oil spill-response plans.
Bakken outlook: Oil industry faces hurdles in 2015
By Mike Nowatzki, Dec 26, 2014
Brothers Dusty, left, and K.C. Sutton of Nine Energy Service prepare to install a blow out preventer on a new well on July 7 south of Stanley that has been fracked and needs to be cleaned out before it produces oil. FNS Photo by Michael Vosburg
BISMARCK — With oil prices slipping to their lowest point in more than five years, new state regulations slated to take effect and lawmakers proposing major investments in oil country, 2015 is shaping up to be a critical year for the oil and gas industry in North Dakota.
Here’s a look at some of the top issues.
New rules resonate
Rules adopted by the North Dakota Industrial Commission in 2014 will continue to resonate in 2015.
Gas capture goals adopted in July will require operators to reduce the percentage of natural gas flared from oil wells to 23 percent by Jan. 1 and to 15 percent by 2016.
Statewide, operators already met the first goal of 26 percent by Oct. 1, beating it by 4 percentage points.
But eight individual operators didn’t meet the gas capture goal, and several postponed completion work on wells to achieve the goal, Department of Mineral Resources Director Lynn Helms said.
North Dakota Petroleum Council President Ron Ness said substantial amounts of gas are being “held hostage” in negotiations over pipeline easements. He estimated well over one-third of the flared gas is the result of three or four easement hang-ups on private, tribal and federal lands.
“Those few bottlenecks are holding up a substantial amount of connections,” he said.
Oil conditioning required
Starting April 1, oil conditioning rules adopted by the Industrial Commission this month will require operators to use equipment to separate butane, propane and other volatile gases from crude oil, and to run the equipment within certain temperatures and pressures to lower the oil’s vapor pressure to 13.7 pounds per square inch.
State officials say the rules will improve the safety of crude-by-rail shipments. Critics contend they’ll do little to prevent the kind of explosive train derailments that spurred their creation.
Ness said the Petroleum Council was amenable to safety standards based on science but “we adamantly objected to the micromanagement” maintained in the final order. Some companies will have to make substantial investments in well-site equipment and testing required by the rules, he said, noting one operator believes their cost could range from $10 million to $20 million.
Requiring the equipment to be installed during the winter months so it’s ready by April 1 also was “a significant misstep,” he said.
“Operators are already in the process of figuring out what they need to do on each of their facilities to come into compliance, but I think we’re pretty frustrated with the process,” he said.
Price uncertainty high
Continued lower oil prices will make some drilling activity less profitable in emerging and mature oil plays, but prices are expected to remain high enough in 2015 to support new drilling in the major shale areas in North Dakota and Texas, the U.S. Energy Information Administration said in its short-term energy outlook Dec. 9.
The outlook forecasts average spot prices of $68 per barrel for Brent crude and $63 per barrel for West Texas Intermediate crude in 2015, with lower prices early in the year, the EIA said, citing “high uncertainty” in the price outlook.
Helms is optimistic prices will recover, calling the recent decline “a blip.”
Ness said the industry doesn’t see it that way, noting most analysts are predicting the price slump could last eight to 16 months or even one to two years as U.S. supply stays strong, global demand remains weak and OPEC continues to challenge U.S. production.
“We don’t know what the new normal for oil prices is going to be,” he said. “We’re in an energy war.”
North Dakota light sweet crude oil has dropped below $40 a barrel.
And while some barrels are hedged, “by and large, we’re probably taking $60 less a barrel than we were six months ago,” Ness said.
As a result, companies will deploy less capital and idle drilling rigs or move them from fringe areas to higher-producing areas, he said.
If low prices continue into February and March, “We’re going to see substantial reduction in exploration activity,” he said.
Helms said falling oil prices, oil conditioning and flaring reduction were factors in North Dakota’s drilling rig count dropping by 10 to 183 as of Dec. 12. He expects a 40- to 50-rig reduction by mid-2015 because of soft oil prices.
Oil tax reform?
Efforts to change North Dakota’s oil tax structure failed during the 2013 legislative session, and it remains to be seen whether similar proposals will surface when the Legislature convenes Jan. 6.
Sen. Dwight Cook, R-Mandan, chairman of the Senate Finance and Taxation Committee, introduced a bill last session that would have ended a series of 10 tax incentives designed to help draw oil companies to the state and keep them viable, while lowering the oil extraction tax from 6.5 percent to 4.5 percent for wells built after 2017. The bill failed in the House, as did an oil tax reform bill sponsored by Rep. Roscoe Streyle, R-Minot.
“I will not be introducing any similar legislation this session, and I haven’t heard of anybody else who has,” Cook said Tuesday. “But I guess I wouldn’t be surprised to see something.”
Trying to get rid of incentives – including reductions and exemptions to the extraction tax that take effect when the price of crude drops below a “trigger price” for five consecutive months – could be a tough sell with oil prices as low as they are, Cook said.
“You need to do that when there are high prices,” he said.
Ness said the Petroleum Council doesn’t plan to push any oil tax reform legislation.
“We fully expect that we’re going to sit back and utilize those incentives if they come,” he said.
Legislative proposals
Elected leaders have unveiled big spending proposals to address infrastructure, housing and other needs in oil-impacted areas of western North Dakota.
Chief among them is Gov. Jack Dalrymple’s budget recommendation to increase the share of oil production tax revenue being sent back to oil producing counties from 25 percent to 60 percent for the 2015-17 biennium, while lowering the state’s share from 75 percent to 40 percent. Senate Majority Leader Rich Wardner, R-Dickinson, is spearheading a similar proposal.
The adjusted formula would generate $1.7 billion for the counties and their political subdivisions, or $1 billion more than what the region is expected to receive this biennium, Dalrymple has said.
The governor also wants lawmakers to fast-track $873 million in “jump-start” funding so the state’s oil and gas region can get a head start on construction projects next spring. He’s also recommending $119 million in Energy Impact Grant funds.
Radioactive waste
Several illegal dumping incidents reported in 2014 focused attention on proper disposal of filter socks and other radioactive oilfield waste.
The North Dakota Department of Health has proposed rules that would increase the limit of radioactivity from 5 picocuries per gram to 50, allowing companies to dump the waste at special oilfield waste landfills and industrial waste landfills instead of having to haul it out of state. Companies also would be required to keep manifests to track the waste.
A public comment period is open until Jan. 31, and the approval process is expected to take several months. The Legislature’s Administrative Rules Committee must approve the rules.
“That’s going to get a lot of discussion,” Cook said.
U.S. shale oil production. Photographer: Andrew Burton/Getty Images
The three-way collar strategy that some drilling companies use to hedge oil and natural gas price risks could aggravate a cash crunch in the face of a steep slump in oil prices, according to this analysis. Although this hedge is cheaper than other strategies, it can expose companies to sharp price declines. “Because we’ve had high energy prices for so long, it could have given them a false sense of confidence. They picked a price they thought it wouldn’t go below. It has turned out to be very expensive,” said Ray Carbone, president of Paramount Options. MORE: Bloomberg (12/19)
Curtis Tate / McClatchyDecaying track and bridge conditions on the Alabama southern railroad could pose a risk to Tuscaloosa, Ala., population 95,000. Above, video of trains crossing the bridge.
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