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UH Professional Development Director: Voluntary Retirements Skew Layoff Number

The reduction in oil and gas jobs in recent months has been exacerbated by a rise in voluntary retirements as older workers exit the industry, a university career development professional says.
UH Professional Development Director: Voluntary Retirements Skew Layoff Number

One of the more pressing strategic concerns for oil companies in recent years has been the “great crew change” – that mass exodus of older workers who are beginning to move out of the workforce and into retirement. As they leave the industry, these workers are taking their years of experience in a highly technical field with them, and leaving a gaping hole in the energy industry talent pool. However, media focus seems to have shifted to the subject of layoffs amid the downturn in crude oil prices that accelerated over the second-half of 2014, and conventional wisdom now suggests that many oil and gas companies cannot shed workers fast enough. But has the hiring of new recruits really slowed all that much, or is the oil and gas industry still a great career path for the right person?

It depends on who you ask, and on what area of the energy industry one is referring to.

An alternative perspective from Houston

For Vita Como, the Senior Director of Professional Development at the University of Houston’s Cullen School of Engineering Career Center, it has been business as usual for those dealing with oil and gas employment, with a few exceptions.

“We’re not seeing that (a reduction in the hiring of new recruits),” Como said. Interns might be receiving only one offer, rather than four or five, and new graduates might not be getting signing bonuses disguised as relocation packages, but they are still getting good offers.”

A big part of what is happening, at least in the Houston area, is that the recovered economy has changed the dynamics for older workers nearing retirement, Como explained. Many older workers who put off retiring because of the diminished value of their portfolios are now able to follow through on their long-delayed retirement plans. Also, the slowdown in the industry has allowed some energy companies to offer lucrative voluntary retirement packages. And because people are looking for signs of layoffs, "they see the natural attrition as a sign that companies are making extensive staff reductions,” Como said.

“The annualized attrition rate is not that different from what we’re used to seeing. People are seeing a large change because they expect to see one,” Como noted.

However, she noted that because the spring is a time of less activity than the fall, a more valid test of the strength of oil and gas hiring could come in a few months, particularly if oil prices fail to show signs of recovery.

That does not mean that many smaller companies that were more heavily leveraged during the fracking boom haven’t been hurt by the downturn in crude oil prices. For those smaller players, who hedged on oil prices that were well above where they now are, survival has been difficult, and some companies have had to drop out of the business or be absorbed by larger ones, Como said.

Some have questioned the sudden and persistent drop in crude oil prices, and if one looks only at production figures, the downturn has indeed been puzzling, Como noted. However, if one looks at currency valuations, the downturn in oil prices begins to make more sense.

“We had an overproduction in crude oil for a year and a half before prices began falling hard last fall, so it’s not just a matter of production numbers. What happened was that China and India had been buying cheap oil when the dollar was weaker, and they had a surplus. So, when the dollar began strengthening, and oil prices were no longer such a good deal, they quit buying.”

While the attention given to energy industry layoffs amid the downturn in crude oil prices might be somewhat overblown, a layoff really hits home to the individual or family affected, Como acknowledged. And for a number of rig hands and workers in field, who have seen jobs slip away amid budget revisions or cuts in production at many companies, the effects of the drop in crude oil prices cannot be overstated.

Job losses create a ripple effect

During the current oil industry downturn, there have been tens of thousands of job reductions, whether from layoffs or early retirement. A tally by Bloomberg in February put the total at more than 100,000, while a more recent Forbes article in mid-March put the total at 75,000 or more. Either way, given a total of about 600,000 people working in the oil and gas industry in the U.S., as Forbes notes, that’s a sizable fraction of the energy industry’s workforce that is no longer in the workforce. And while a sizable percentage of the people who left the industry may have been up for retirement, their absence can still create a noticeable lag on the overall economy, particularly in oil and gas towns like Houston or Midland.

The impact of a lost energy sector worker not only affects the worker, but it has a disproportionate effect on the economy as a whole, since energy sector workers tend to be more highly compensated than the average worker. According to the Energy Information Administration (EIA), the average energy worker made $108,000 in 2013, more than twice the average wage for all private sector jobs.

In addition to layoffs and voluntary retirements within the energy industry, the downturn can also contribute to a slowdown in hiring. Forecasts for overall Houston job growth in 2015 have been revised down to between 30,000 and 50,000 new jobs, well under forecasts of 63,000 jobs before the drop in the price of crude oil, Patrick Jankowski, senior vice president of research for the Greater Houston Partnership, told the Houston Chronicle in a March 26 story. 

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