Strategists Look at USA Oil Patch Labor Trends

Labor output in the U.S. oil patch has already significantly exceeded the pre-Covid January 2020 level, Macquarie strategists highlighted in a report sent to Rigzone recently.

“Despite some softening in recent months, oilfield labor output is up sharply year on year and significantly exceeds pre-Covid, January 2020 levels on a seasonally adjusted basis,” the strategists said in the report.

“Meanwhile, despite pronounced concerns around labor as a constraint on U.S. supply, newly delivered oil and gas supply in 2022 appears just short of 2018/2019 highs,” the strategists added.

According to a chart included in the report, which stretched back to 2012 and showed weekly industry production/non-supervisory work hours in oil and gas extraction and support, total weekly industry production/non-supervisory work hours reached their lowest point during 2020, coming in at around 9,000. The latest value included in the chart in 2023 is 12,803.

The strategists also noted in the report that, in the current cyclical upturn, hours worked in the oil patch has outpaced hiring.

“While we see a historical tendency towards an increase in hours worked per employee at cyclically high periods of activity, this has been persistent, signaling a tight labor market,” the strategists said in the report.

“More recently, this tightness appears to be easing, with continued increases in employment and weekly hours trending lower. Despite this apparent labor tightness in the oil patch, wage inflation does not appear as problematic as widely perceived,” they added.

“While wages for production/non-supervisory employees in oil and gas extraction (we read as broadly mapping to E&P operations) has sharply risen (+13.5 percent vs. Jan. 2020), increases in support activities for oil and gas operations (we read as broadly mapping to OFS ops) have been more limited (+8.3 percent vs. Jan. 2020),” the strategists continued.

“With the latter representing ~76 percent of industry hours worked, we believe this is the more relevant indicator for oilfield labor inflation,” they went on to state.

All told, total industry earnings per incremental barrel of oil equivalent delivered has fallen significantly since 2012 as total labor costs have remained fairly flat and new supply delivered has risen appreciably, the strategists said in the report.

According to the Texas Independent Producers & Royalty Owners Association’s (TIPRO) latest State of Energy report, which was released back in January, the U.S. oil and gas industry employed 948,943 professionals in 2022. The report highlighted that this figure represented a net increase of 39,721 direct jobs compared to 2021, “subject to revisions”.

There were 358,776 direct U.S. upstream sector jobs in 2022, which marked a net increase of 32,627 jobs compared to 2021, the report outlined, adding that the largest sector by employment in the U.S. oil and gas industry was Support Activities for Oil and Gas Operations, with 199,552 workers in 2022, followed by Oil and Gas Pipeline and Related Structures Construction (129,949), Natural Gas Distribution (111,918), and Crude Petroleum Extraction (82,628).

The largest gains in jobs in 2022 occurred in Support Activities for Oil and Gas Operations, with a net increase of 23,039 jobs compared to 2021, followed by Drilling Oil and Gas Wells (9,489), and Oil and Gas Field Machinery and Equipment Manufacturing (2,450), the report highlighted.

The report revealed that 21 percent of jobs were held by individuals between the ages of 25-34, 28 percent were held by those between 35-44, 23 percent were held by those between 45-54, 19 percent were held by those between 55-64, and five percent were held by those who were 65 or older. The oil and gas industry was said to have paid a national average wage of $120,665 in 2022, which the report noted was 74 percent higher than the average private sector wage in the United States.

Workers in Crude Oil Extraction earned the highest annual average wage of all oil and gas industry sectors at $210,417, followed by Petroleum Refineries ($157,024), Natural Gas Extraction ($152,996) and Petrochemical Manufacturing ($151,751), the report outlined.

In its latest short term energy outlook, which was released last month, the U.S. Energy Information Administration (EIA) projected that U.S. crude oil production will average 12.81 million barrels per day in the third quarter of 2023. This is predicted to average 12.93 million barrels per day in the fourth quarter, and 12.76 million barrels per day overall in 2023, the report revealed.

U.S. dry natural gas production is expected to average 103.36 billion cubic feet per day in the third quarter and 103.63 billion cubic feet per day in the fourth quarter, according to the August STEO, which projects the overall 2023 U.S. dry natural gas production figure to come in at 102.98 billion cubic feet per day.

In 2022, U.S. crude oil production averaged 11.91 million barrels per day and U.S. dry natural gas production averaged 98.13 billion cubic feet per day, the STEO highlighted.

In a statement sent to Rigzone back in April, Rystad Energy Senior Analyst Sumit Yadav highlighted that  the U.S. labor market had been at its tightest levels in more than five decades and noted that, “in line with the broader economy, the country’s oil and gas labor market has also seen increased tightness in recent months”.

“The tightness in the labor market had been even more pronounced for the oil and gas sector, where unemployment stood at three percent in February, even lower than the wider economy rate of 3.5 percent before rising in March,” Yadav said in the statement.

“The prevailing tightness in the U.S. oil and gas labor market has thereby resulted in increased pain for industry players across leading shale basins as they have had to shell out a premium to attract and retain workers,” Yadav added.

“A prominent example is Midland County in the core Permian Basin where wages increased nearly 14 percent by the third quarter of 2022 on an annual basis – a wage growth level that was the highest across all counties in the U.S.” the Rystad representative went on to state.

To contact the author, email andreas.exarheas@rigzone.com