08 July 2016, 20:55 / Business

It will not be easy for the US to restore oil production

Oilfield services companies are exhausted after oil price collapse Alison Sider

Oilfield services companies will find it difficult to actively use equipment after it was actively taken out of service during the fall in oil prices / Eric Gay / AP

Oilfield services companies, from small companies to giants like Schlumberger, power the U.S. energy sector. They have developed the technologies that have enabled the extraction of rich reserves of shale oil and gas, and have the necessary equipment and personnel to drill wells and extract energy resources from remote corners of North Dakota to offshore fields. After the collapse in oil prices that began in 2014, oil service companies were forced to cut costs and employees. Now they are experiencing a shortage of finances and personnel, and this may hinder the growth of oil production in the country amid a gradual recovery in oil prices.

IHS estimates that nearly 70% of the equipment in US shale fields has been retired and 60% of the people working there have been laid off. A lack of experienced workers will hinder the industry's early recovery, says Roy Patterson, CEO of Texas-based Basic Energy Services. According to him, many of the thousands of laid-off specialists have found other jobs and, at best, can be attracted with higher salaries, but companies are finding it difficult to afford this. “It’s scary to think how difficult it will be to find experienced employees now. Pop the hood of a car and leave it for a year and the car won't be the same again,” says Patterson. He currently has no problems with employees, but he does have problems with equipment.

The US has surpassed Russia and Saudi Arabia in terms of recoverable oil reserves

Business / TEK

Bigger, wealthier companies are better positioned to weather the business downturn and must now take market share from smaller rivals forced to cut costs more, analysts say. Thus, Halliburton laid off more than 28,000 people, or a third of its workers. But the company has been careful to retain qualified employees, said its human resources director Lawrence Pope. Halliburton has experience hiring workers quickly when needed. In 2014, as many oilfield services companies struggled to attract staff and meet high demand for their services, Halliburton hired 21,000 people in one year. “We became a machine for hire during the boom,” Pope says.

The world's largest oilfield services company, Schlumberger, offered many senior engineers and some valued workers to continue paying half their salaries while on furlough. This should allow her to invite them back as needed in the coming months.

Oil companies hoping to increase production can no longer count on the fact that they will be able to again achieve lower prices for oilfield services, as was the case in the second half of 2014 - in 2015. “Most oilfield service companies are now fighting for survival due to for losses and negative cash flows,” said Schlumberger CEO Pal Kibsgaard recently. “There will be fewer opportunities to save on cheaper services when activity starts to pick up.”

Middle Eastern oil occupies the largest market share

Business / TEK

The CEO of small company Key Energy Services, Robert Drummond, said in May that oil workers would have to accept higher prices if they wanted to resume work. At the same time, Key Energy Services itself announced in June that it was preparing to declare bankruptcy, asking for protection from creditors in order to restructure its debt. The company's stock price fell to $0.22, down from $9 at the time of the oil price peak in 2014.

More than 70 companies have filed for bankruptcy since the start of 2015, about half of them this year, according to law firm Haynes & Boone. Some clients are wary of hiring oil service companies with large debts, said Stephens analyst Matthew Marietta. This can create a vicious cycle and make the prospect of their bankruptcy even more real.

In the current environment, with rising oil prices and activity in the industry, only a few companies can afford to quickly hire workers and repair equipment if necessary, says Piper Jaffray analyst Bill Herbert: “I don’t think the industry realizes how difficult the recovery could be.” .

Translated by Alexey Nevelsky