Bust of Oil Drilling Boom Has a Human Side
As I look back at the past year in the drilling industry, the changes are pretty dramatic. I would say shocking to a lot of people, but I have seen these cycles come and go, so it’s no big surprise. The drilling industry has always been a boom-or-bust kind of business.
The most obvious change has been in the oilfield side of drilling. A little over a year ago there were 1,690 rigs running in the United States. As I write this, the Baker Hughes rig count is 709. That is a loss of 881 rigs. Where did they all go? Some of the older and less competitive rigs were scrapped out, so they are gone for good. But there are a large number of latest-generation rigs that are “hot-stacked.” This means that they are complete, and ready to run at the push of a starter button. The industry calls them zombie rigs. The investors think if the market turns around, they can be the first to mobilize and get the new contracts. They may or may not be right, but oilfield investors are used to quick profits and probably not going to have too much patience with the maintenance costs. These rigs represent millions of dollars each out of the economy, but there is another side: the human side.
A modern rig, capable of drilling deep, horizontal wells is an amazing and complex machine, and takes a lot of people with very specialized skills to operate. It is estimated that during the drilling of a modern well, 225 people are directly involved. These are people that come to the location and work on every well. Of the 881 rigs not working, this means that there are 198,225 highly paid, and very skilled, hands not working. I have seen higher estimates, but you get the idea. Also, remember these are just field people. Behind them are an army of others: sales, management, supervision. Like a rock in a pond, the effects spread. The waitress at the cafe suddenly doesn’t have any customers. The motel lays off staff because they are no longer full. The truck dealer doesn’t need as many salesmen if nobody is buying. Truck drivers are no longer delivering the steel that is no longer being produced.
The effect spreads deep into our communities, and affects everyone. These people all have families, and children that depend on them. We are all glad of lower gas prices, but at what cost? In order to keep the unemployment numbers looking favorable, they just stop counting people whose unemployment has run out. They say they are not looking for work. This is similar to announcing that people have broken the eating habit and are no longer buying food. Another group no longer counted is the hands that, like the older rigs, are retired for good, whether they want to be or not. Most of them would like to work, but waiting out this bust cycle may put them out of time. Add the self-employed to this. They were never on a list anyway, so they don’t count.
Other segments of the drilling industry are suffering too. Water well drillers are being pressured by long lines and community water systems. I recently watched a water pipeline, 60 miles long, be built to process and sell river water to dozens of communities formerly served by house well drillers. They are now wondering what happened.
The mineral exploration drillers are also taking a hit. Metals such as gold and silver are now selling at well below production costs. There is no reason to drill for something you are going to lose money on.
Add to this anybody drilling for coal. Our present administration is doing everything it can to stop the exploitation of our most abundant resource, in spite of the industry’s very effective efforts to cut pollution and clean up after themselves.
Gas well drillers are suffering because pipelines can’t be built to get their product to market. There is a glut of gas in Pennsylvania and a shortage in the far Northeast because New York won’t let them run a line to this nearby, and ready, market.
Before you accuse me of saying the sky is falling, I will say that there are bright spots. The irrigation well drillers are way behind, due to the drought. Some drillers have found a niche market and are doing well. Some oil producers have found ways to cut costs and drill only the wells that are in known “sweet spots.” Service companies have gotten more competitive, and we’ll probably see the ones with large cash reserves buying the guys with cash flow problems.
These are all consequences of the boom-and-bust nature of our industry. I’ve seen several, and I know it will get better, but not without a few hiccups on the way. When the industry crashed in the ‘80s, a whole generation of young hands went to work somewhere else, and when things picked back up, the industry had to scramble to find people.
I’ve seen this happen before, and I always wish I could predict when. My younger friends in the industry were all amazed at how much money they were making, and many had new trucks, new houses and new girlfriends, plus big-screen TVs, guns and any other toys that caught their eye. I tried to tell them to buy whatever they wanted, as long as they had the cash in their pocket. In other words, don’t go in debt. Now you can buy trucks, houses and girlfriends, at cost, by just taking over payments.
We will emerge from this bust, stronger and better than we were before, but it will take time and perseverance. In the meantime, we can keep looking for those niche markets and improving efficiencies.