Energy

Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

Friday's jobs numbers won't exactly be celebrated in America's oil patch. But there are now unmistakable signs that the savage cutbacks of the past couple of years are ending.

While another 2,000 oil and gas workers lost their jobs in September, it is clear the pace of cuts has bottomed out.

Working Through It
After the deepest cuts on record, oil and gas payrolls are bottoming out
Source: Bureau of Labor Statistics
Note: Data are year-over-year change

This stabilization is most apparent for those Americans classified as working in "oil and gas extraction," representing the higher-skilled positions. Having peaked at just over 200,000 employees in late 2014, they have been stable at around 172,000 since June. What's more, their wages are rising at a healthy clip of more than 5 percent year-over-year.

Most of the burden of cuts has been on lower-skilled support workers for the industry. Their ranks have dropped by more than a third since the peak. And while their wages are rising this year, an extra 1 percent won't pay for much.

On the flip side, those tight wages do give exploration and production companies breathing room. Using official data on payrolls and earnings, along with oil and gas production and prices, it is possible to estimate a rough wage bill for the industry and see how it compares with a crude estimate for revenue. Again, while things certainly aren't back to pre-crash levels on this front, they do look more stable:

The Bottom Line
The bounce in oil prices in late summer, combined with cutbacks and pay restraint for support workers, helped lower the industry's wage bill as a proportion of estimated revenue
Source: Bureau of Labor Statistics, Energy Information Administration, Bloomberg, Bloomberg Gadfly analysis
Note: Assumes natural gas production remained flat in September compared to August.

That line likely held steady in October, given strength in oil prices last month. However, the recent slide as hopes for a supply cut from OPEC have faded means the industry's fortunes remain finely balanced.

Besides OPEC, the other elephant in the room here is an oilfield-services industry that has borne much of the burden of cost-cutting. Those companies want to be at the front of the line for higher fees when oil and gas prices stage a sustainable rally.

The implication is that a large part of the oil and gas industry's touted efficiency gains during the crisis will turn out to be cyclical, rather than structural. We won't know for a while exactly how much. But those big hourly wage gains for extraction workers are certainly worth watching.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. There's a lag with the sector data, so everything here is updated through September rather than October.

To contact the author of this story:
Liam Denning in New York at ldenning1@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net