The turmoil on the oil market caused by COVID-19 has led to less than anticipated activity and delayed projects, forcing the industry to implement cost-cutting measures
Rystad Energy’s analysis of the top 50 oilfield service (OFS) firms shows that employees are set to reach their lowest level in more than 10 years, with expected revenue per employee also falling to the level of the previous downturn.
Rystad Energy tracks the number of the top service companies’ permanent employees, including permanent employees reported at year-end. The analysis shows that the reduced levels of staff in the OFS industry seen in 2016, after the previous downturn, have mostly remained at just over 760,000 employees since then, keeping a major cost driver – investment in human capital – at steadily low levels.
The downsizing expected this year, however, is likely to result in the OFS industry experiencing the lowest total headcount in more than a decade, which Rystad estimates will be around 610,000 employees.
In the analysis, Rystad calculates revenue per employee as the total annual revenue of a company, divided by the number of employees per year-end. Studying this parameter gives an understanding of how service companies can make efficient use of their employees. Rystad considers this metric on a weighted average basis for the top service companies, which earned a total of more than US$200bn in 2019.
When the price of Brent oil was above US$100 a barrel, the analyst saw companies historically earning about US$300,000 or more per employee. However, as seen in 2016, when prices dropped, revenue per employee fell to as low as US$250,000 per employee.
This year the analyst expects revenue per employee to fall again, diving from the stable levels seen in the past two years to about US$260,000 per employee as revenues from the largest OFS companies plummet faster than their respective headcounts do.
Revenue per employee is unlikely to fall as hard as in the previous crisis – companies have reacted early with layoffs and furloughs, and there are fewer redundancies in terms of investment in human capital this time around.
Schlumberger, for example, recently announced that it will lay off 21,000 employees – equal to 20 per cent of its workforce – and is expected to have a 25 per cent y-o-y revenue decrease in 2020. This will bring its revenue per employee to US$290,000, more than a seven per cent decline compared to last year.
As early as 2019, OFS companies engaged in shale operations began to reduce their labour force actively. Revenues this year will continue to fall at an even faster pace. In the meantime, the long lead times of offshore projects mean that employment trends are typically less volatile in the offshore sector.
In addition, several offshore companies have already started the process of diversifying their offerings, shifting focus, in particular on renewables. Such engagement in other industries could provide a cushion to low oil prices.
As a result, revenue per employee is expected to slightly decrease in the offshore sector. Within the analysis, Rystad sees companies in the onshore sector in North America will struggle more with the transition to new markets as their work focuses primarily on drilling and well-service, which does not transfer to other industries beyond oil and gas as well.
