All Bad News?

Winners and losers as the oil price slump continues.
This article appeared in Vol. 12, No. 2 - 2015


Sign above queue of unemployed men outside a depression soup kitchen opened in Chicago by Al Capone, 02-1931 - U.S. National Archives and Records Administration.

Is the precipitous drop in oil prices we have seen in recent months all bad news? Certainly not for consumers, who are revelling in filling their cars and heating or cooling their homes for considerably less. Not great, however, for the many people from a range of oil and service companies who are facing layoffs and redundancy as a result of the reduction in production and associated cut backs; estimates suggest that about 75,000 jobs were lost in the industry in the first three months of 2015. Not good for new graduates clutching their degrees in the petroleum sciences, until recently a passport to employment; no longer so in times of limited recruitment. 

What about the hydrocarbon industry as a whole? An interesting side effect of the reduction in prices has been a counterbalancing increase in efficiencies in exploration and production. In times of high oil prices, companies exert less pressure on this; in the UKCS, for example, production efficiency dropped from 80% to 60% between 2004 and 2012. Huge efforts are now being made to turn that around, through government and industry collaboration programmes which encourage partnerships, standardisation of best practice, optimisation, transparency and – very importantly – learning from the past. 

Much has been said about how the upsurge in US production resulting from the exploitation of shale oil has been one of the drivers of oversupply and the consequent oil price drop. But in many cases lower prices have resulted in increased production from fewer wells, using new technologies that reduce cost and improve efficiencies. On the downside, a Weatherford director recently predicted that possibly up to half the independent fracking firms operating in the US at the moment could be gone before the end of the year, with the pricing of fracking set to fall by up to 35%. Some shale producers are also finding it tricky to keep their heads above water, and there have already been a number of company failures. 

Shell’s takeover of BG signals the beginning of the inevitable round of mergers, acquisitions and consolidations which always happen in a downturn. When we reach the other side – and I am not predicting when that will be – it will be with a leaner and more efficient industry, but a lot will have fallen by the wayside.

Jane Whaley


Soup kitchen opened in Chicago by Al Capone, 02-1931 - U.S. National Archives and Records Administration.


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