Oil Drilling Jobs Growth of 35% May Pave Way For Acquisitions

Halliburton Co. (HAL), Baker Hughes Inc. (BHI) and Nabors Industries Ltd. (NBR) may be poised to acquire competitors as an “ultra-tight” market for oilfield labor makes it difficult for smaller drilling and service companies to hire skilled workers.

Increased onshore demand for drilling and production work will require 19,000 new U.S. workers by the end of 2012, said Brian Uhlmer, a Houston-based analyst at Global Hunter Securities.

The 35 percent boost in employment may limit new competitors from entering U.S. fields and may lead to potential mergers and acquisitions as smaller service companies lack the resources to attract talent, Uhlmer said today in a telephone interview.

“This is when the smaller companies become more apt to sell,” Uhlmer said. “That can create a wave of mergers and acquisitions, because those guys can’t compete, they can’t find bodies, they don’t have the logistics to support any growth.”

Crude prices have surged 45 percent in the past year, prompting new exploration and production efforts in the U.S. Rapid expansion of U.S. operations has necessitated a larger pool of skilled employees for drilling and service companies.

Baker Hughes, Halliburton, Nabors, Helmerich & Payne Inc. (HP), and Key Energy Services Inc. (KEG) will benefit from the tight labor market because of their strong human resources departments and a national pool of employees from which to draw, Uhlmer wrote. They will be able to hire employees away from smaller competitors.

The industry employed about 54,295 U.S. workers at the end of March, Uhlmer wrote today in a note to investors.

Shale Drilling

Producing gas and oil from shale and other U.S. formations will require about 11,266 new workers, he said. Shale-rock formations require injection of water, sand and chemicals to release gas or oil.

Shale-gas production has more than doubled in the past three years and may account for 47 percent of total U.S. production in 2035, up from 16 percent in 2009, according to the Energy Information Administration.

The number of new hires needed would be more than the total combined employment of smaller servicers and drillers Basic Energy Services Inc. (BAS), Bronco Drilling Co. Inc., Complete Production Services Inc. (CPX), Pioneer Drilling Co. (PDC), RPC Inc. (RES) and Union Drilling Inc. (UDRL), according to Uhlmer’s note.

Recruiting even 15,000 new workers to the oilfield with the needed experience will be “just impossible,” Martin Craighead, chief operating officer for Houston-based Baker Hughes, told investors May 23 at the Barclays Capital Americas Select Conference.

The service companies will have to hire from the Midwestern U.S. such as Ohio, where unemployment rates are higher, Uhlmer said.

Unemployment in the five of the largest U.S. oil and gas basins, which include areas in Texas and North Dakota, is at 6.5 percent below the national average of 9.2 percent, he wrote.

To contact the reporter on this story: David Wethe in Houston at dwethe@bloomberg.net.

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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