One dramatic consequence is the numerous lay-offs in the service industry, which are now approaching the levels of 2010.
This chart from Rystad Energy – the Oslo-based market intelligence company – depicts the full-time-equivalents (FTE) of workers in the top 30 service companies with declared cuts in their work force.
These companies had an aggregated $250 billion in revenues and about 730,000 employees in 2014.
As E&P spending rose significantly by 10% annually from 2010 to 2013, so did the number of people employed in the service industry. Growth in revenues and manpower was key to maintain and increase market share in a growing market.
In some regions it was challenging to find qualified people such as geologists and petrophysicists. As a consequence, labour costs increased and helped to fuel the cost escalations in the industry.
But when the early signs of the falling oil price were evident in the last half of 2014, companies were forced to perform larger organisational improvements in their work stock. Twelve months ago, Brent crude oil was selling for $110-barrel. Now it struggles to float above $50-barrel.
So far into 2015 there have been announced lay-offs close to 13% of the work stock at the largest service companies.
Assuming that these lay-offs are very much representative for the rest of industry, we would expect the top 400 service companies to cut as many as 200,000 workers over the period of 2015-2016.
In the North Sea, there has been substantial focus on the large cuts in the service industry.
The offshore sector in this mature basin is being highly impacted by low oil prices, and activity has slowed down dramatically.
More than 400,000 people are employed in Norway and the United Kingdom in the service industry and the announced reductions are close to 40,000.
Breaking down the cuts in Norway down to segments reveals that most of the cuts are within Maintenance and Operations, which is also the largest cost contributor for E&P companies in the North Sea. Here we see Aibel and Aker Solutions being impacted by imposed MMO scope reductions and efficiency programs.