Those living and working in the center of the Oil patch tend to watch Oil prices very closely. So when the news outlets start bringing in their panels of ‘experts’ to talk about the future of the oil and gas industry that generally gets our attention. A drop in the price per barrel can have a dramatic affect budgets and hiring trends. We reached out to the true experts in the field to get their thoughts on this recent drop in the price.
We surveyed over 200 Independent Producers and Operating companies to get their thoughts as well as their response to the price of oil. Overall we received very interesting information so we thought we would take the opportunity to share.
Response
When the price of your product drops 20% one would wonder if the US Oil industry is in panic mode? No industry likes to see their product drop in price overnight. However, due to the considerable investment the oil producers make in their product, they have a long term perspective. Our clients are thoughtfully watching the prices. Cautious yes, panicked—no. Several of the responses stated that they had been expecting a price correction because of the increased production.
Many have hedged their prices for the next two years so a temporary dip in prices will not affect their business model.
Others will modify their business to remain profitable. For example cutting back on the number of rigs but increasing the production from the remaining rigs. They are modifying their production plans to reduce the cost and still produce the same amount of oil.
The overwhelming response was business as usual.
Christopher Helman on Forbes.com wrote an excellent article about the current oil price drop: Why Harold Hamm Isn’t Worried About Plunging Oil Prices.
Impact on Job Market
The question for us is how this will impact the current job market. Will these companies keep hiring, increase, decrease, or layoff?
In the near term there were no mentions of a cut in hiring. Most have a calendar year budget and will continue to fill their current staffing requirements. So the follow up question would be how it would affect next year’s hiring budgets. I think there are two aspects to this problem: perceived future price
Most of the 2015 budget cycles are determined in the fourth quarter. If companies believe that prices will drop below $70 they might trim their hiring budgets. Most of our clients did not see this as a trend so for now we don’t see evidence that 2015 hiring will be impacted by current market trends.
There is a second potential impact on 2015 hiring and that would be the retirement of current staff. The current oil boom has kept many baby boomers working and delaying their retirement plans due to lucrative packages. If profits and therefore bonuses decrease in 2014/2015 then there is a chance that these boomers might retire. An exodus of this nature would increase the need for qualified employees in an already tight employment market.
For now, as long as the prices are more than $70 most of our clients see little change in their short term business.
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Source of crude price chart from www.nasdaq.com