Weak business conditions have impacted employment and salaries for the oil and gas business worldwide, but the picture may be brighter in the midstream sector than many expect—thanks in part to LNG projects.
In an analysis of early 2015 employment statistics published by the U.S. Bureau of Labor Statistics (BLS), Global Hunter Securities said, “The overall tone of the data was slightly upbeat, while we maintain a cautious approach to macro (energy industry) developments in the coming months.”
Global Hunter noted declines in energy-related jobs, led by drops in heavy and civil engineering, utilities and metal fabrication, as well as the government agency’s upstream-focused “oil & gas extraction” category.
Year over year the BLS statistics looked better with employment up in energy-related categories. For example, pipeline construction employment rose nearly 5% in the one-year period.
A separate Global Hunter analysis of U.S. salary trends noted the BLS reported a 2.16%, year-over-year increase in wages in the first half.
Global Hunter found a “negative signal for commodity prices. Assuming wage growth remains under pressure in the near term, then this should provide another downside source of pressure upon asset values across most classes, in our view” and puts pressure not only on wages and hiring but other economic factors, including the Federal Reserve’s efforts to increase interest rates.
Hays Plc, a London-based recruiting and personnel consulting firm, reviewed industry trends in its recently published Oil & Gas Global Salary Guide 2015.”
“The changes in the price of oil in the last quarter of 2014 … impacted the labor market, however the sentiment in the industry remains positive,” John Faraguna, managing director, Hays Oil & Gas, and Duncan Freer, managing director, Oil and Gas Job Search, said in the report. “Salaries have seen a slight increase, benefits are on the rise and employers still have hiring on the agenda for 2015. Although some businesses are enacting consolidation initiatives, even a small upturn in global economic growth and demand in oil would lead to an overall recovery and strengthening of the labor market.”
The survey found a 1.3% increase in industry salaries in 2014 after a slight decline in the prior year. Respondents ranked salary “as the most important factor in their decision to accept a new job offer,” the report said. It added that regional business volatility is causing greater local variance in salary trends. The survey polled 45,000 energy industry participants.
The Hays report looked at worldwide salary trends within what may be the most international of all businesses: oil and gas. However, it contains some statistics on North American and midstream salary trends. It mentioned in particular employees with experience in the pipeline segment continue to be in high demand.
The U.S. has been a significant force in the international oil and gas business for years and its role may be increasing, thanks to the sharp increases in crude oil, natural gas and NGL produced from unconventional plays, numbers in the Hays report seem to indicate.
“Despite the softening of the (North American) market, there are still areas that are seeing comparatively high hiring intentions, namely in the petrochemicals sector and LNG,” Hays said.
Tobias Read, CEO of Swift Worldwide Resources, an international energy-industry recruiting firm, told Hart Energy that the midstream sector is the bright spot in the oil and gas industry’s current hiring and salary picture.
“While we are seeing significant cuts within upstream and a softening of demand in downstream, midstream jobs continue to flood the market and midstream salaries remain strong,” Read said. “In upstream, broadly we are hearing about higher job losses from the corporate internal staff than we are from the professional-grade contractor pool. This anomaly is explained as most contract employees are higher grade, sometimes in critical positions and in existing/ongoing projects.
“To a very large degree, corporations are not hiring in the upstream—the direct-hire market has frozen. However, internal salaries have not been cut. Contractor rates have, however, been reduced globally by between 10% to 15% on day rates, up to 25% in certain cases. Downstream and midstream markets have been comparatively unaffected so far by layoffs or day-rate reductions,” he added.
Michelle Parchman, CEO of San Antonio, Texas-based Parchman & Parchman LLC, specializes in recruiting for executive, financial and accounting positions and counts several midstream firms among her clients. Parchman told Hart Energy that recruiting and salaries for her midstream and downstream clients have remained comparatively strong.
“There are plenty of opportunities from where I see things,” particularly in finance-related openings, she said.
“I don’t see any appreciable change in salaries. I don’t see a decrease to any significant effect,” Parchman added. Several of her midstream clients paid year-end bonuses at the first of this year, a signal that business remains good, if not very strong for the companies. “There have been some staff changes relative to mergers,” she added, but that’s not unusual. On the flip side, she has seen companies increase staff because of acquisitions.
In comparison, upstream producers are actively reducing staff in San Antonio’s nearby Eagle Ford play, she said, or are in a temporary holding pattern. Most have stated they expect the price of oil to increase, but it is a matter of time. Some have stated they expect to see the uptick in the market in the third quarter, she said.
“The amount of new LNG projects globally, including several new LNG exports, continues to multiply even in the downturned market,” Read said. “The result is a surfeit of new opportunities for LNG candidates, greater competition among LNG companies as they compete for the best talent and higher salary demands from our most experienced candidates.”
“LNG activity is set to increase over the next five years,” Jim Fearon, vice president of Hays Oil & Gas, said in the salary survey. “Both in Canada and the U.S., projects will be competing for the same talent pool locally and searching internationally for the skills required. Employers will need a strong employee value proposition to attract the very best candidates available.”
However, the report on the survey said, “It is highly unlikely that all, or even a majority, of these projects will be built as their costs of supply vary greatly.”
Still, the domestic projects create a strong demand for business development, construction, engineering, safety and management professionals—including some displaced from other oil and gas industry functions. That new demand will tend to keep salaries higher. Read added that he has seen “a slight recent increase in demand within engineering disciplines.”
“The three functional areas that have seen above-average increases are construction, business development and piping [pipelines]. This seems a fair reflection on the global market as megaprojects enter construction phases,” the Hays report said. It noted that worldwide, construction, business development and pipelines had the largest salary increases last year.
In Canada, industry activity has “rebounded somewhat on the strength of oil activity, but transportation bottlenecks are still depressing the wellhead price of oil and companies are beginning to slow down or postpone activity in high-cost oil sands areas. Land sales, usually a good forward indicator of activity and optimism in western Canada, are down 25%, the Hays survey found. Approval of the long-debated Keystone XL Pipeline project would be a significant plus for the Canadian oil industry. The Republican-led Congress passed a bill approving Keystone XL earlier this year that was vetoed by President Obama.
To the south, Mexico’s energy reforms are creating demand for potentially $50 billion in new energy projects in the next few years—including that nation’s major need for additional pipeline capacity.
So what lies ahead? Looking at the last industry slump may provide insights on the future.
“On a more optimistic note, the industry weathered the last storm during 2009 and 2010 relatively well and should do so again,” Freer said.
The survey added, “Taking the last recession as a guide, we saw only flat or slightly decreasing salaries, only modest layoffs and a relatively quick recovery in activity. Given the current global situation, it would not take much in the form of economic growth, reduced geopolitical tensions and firming oil demand to lead to recovered prices and an upswing in sentiment and activity.”
The industry’s M&A trend drew the survey’s scrutiny.
“We are already seeing an increase in mergers and the sentiment of employers in the industry is that this will continue throughout 2015,” the Hays report said. “Financially stable companies are looking to maximize on growth opportunities through the acquisition of targets at current, more favorable, prices. Mergers are likely as businesses join forces to help weather the storm.”
The report added the M&A trend can offer benefits for the stronger companies—and experienced employees looking to move ahead. “Taking these changes in 2015 is likely to see a shift in the active-candidate market, therefore this might be a good time for companies to attract and secure the top talent that will be key for future growth,” Hays said.
It added the energy industry’s graying workforce poses a challenge and companies will be responding. “In a bid to attract the very best graduates, we are seeing employers invest
in their entry-level talent, targeting ambitious professionals with plans to groom and develop skills for future career growth,” the Hays salary guide said.
“Midstream and the downstream seem to be faring better in this environment," Preng added. “Most of the cuts that we are hearing about are at the field and staff level and contractors. Everybody’s holding their breath to see what’s going to happen. But there is always a need for good talent.”