Wanted: A Few Roughnecks

There are lots of new rigs, but no one to operate them

After several months of soaring crude oil and natural gas prices, drilling rigs are once again popping up at a furious pace, especially throughout the Gulf of Mexico and in leading oil-producing states such as Texas, Louisiana, and Oklahoma. Indeed, at 920, the number of U.S. rigs in operation is up nearly 60% over a year ago.

So are the good times back for exploration and production companies? Not completely. Many are facing a shortage of skilled workers who can man and service their rigs. "The human resource factor is a major constraint on the industry right now," says economist Scott Espenshade of the Independent Petroleum Assn. of America (IPAA), a Washington trade group. In fact, Espenshade estimates that if the industry had more experienced labor available, the rig count would be as high as 1,100. Oil experts say some drilling projects have been delayed 6 to 12 months because of the labor crunch.

The industry may have no one but itself to blame for its troubles. One major reason for the lack of hands is bad pay. The current squeeze is most acute for roughnecks--the rig workers who earn an average of $10 to $11.50 per hour, according to industry analysts. That's especially low compared with the higher wages available in areas such as construction, which is credited with having lured a big share of defecting oil field workers. "When you can hammer nails for $15 an hour five days a week, why work on a drilling rig for $10 or $11 an hour seven days a week?" asks Wayne Davis, who manages a program that trains oil field workers at Texas A&M University's Engineering Extension Service. The school hasn't offered any classes since 1998 because of a lack of students.

Moreover, several boom-and-bust periods over the last two decades haven't helped the industry's image as an employer. When oil prices bottomed out at $10 a barrel in 1998, for example, many firms reduced or abandoned drilling, laying off massive numbers of rigworkers. According to IPAA, in 1997 there were 350,000 oil field service and E&P employees. By May, 1999, that number had shrunk to 284,000 before climbing back up to its current level of 300,800.

DRASTIC MEASURES. Now that E&P spending is once again picking up, the shortage will likely become more severe. According to a Lehman Brothers' survey, as of May, companies were planning some $24.4 billion in domestic exploration and production expenditures in 2000, a 17.6% increase, vs. a 15.9% rise budgeted in December, 1999.

The labor crunch has left companies scrambling for solutions. Some are coughing up higher pay, adding in-house training programs, and hiring headhunters to help find workers. Others have opted for more extreme measures, such as recruiting workers from Mexico with the promise of help getting green cards. Dewey F. Bartlett Jr., president of the Oklahoma Independent Petroleum Assn., says one Tulsa producer recently confided a unique manpower source: He recruits released inmates at the prison gates.

Ultimately, the best incentive may well be the only one the industry can't offer: stability. "At the end of the day, people are asking, `where's the job security?"' says IPAA associate economist Fred Lawrence. After the ups and downs that oil and gas prices have seen over the past two years, that's unlikely to return anytime soon.

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE