Every downturn in the industry has its good and bad points—some downturns are worse than others. The granddaddy of them all so far in the U.S. was the one in the mid-1980s, when oil prices dropped below $10 per barrel. On Dec. 28, 1981, the Baker Hughes rig count was 4,530 rigs. By July 11, 1986, the count had bottomed out at 663 rigs.
There was another downturn in the early 1990s with only 600 rigs reported working on March 5, 1993. And yet another downturn in 2009 saw the count drop from 2,031 rigs working the weeks of Aug. 29 and Sept. 11, 2008, to 876 rigs on June 12, 2009.
As of midday on Feb. 2, 2015, the price of West Texas Intermediate was at $49.15, and Brent crude was at $54.19. The rig count for Jan. 30 was 1,543 rigs. Today’s drop in the number of working rigs is not as precipitous as the earlier declines. Of course, that isn’t much consolation for the workers being laid off as a result of lower oil prices.
There are some differences between today’s downturn and the earlier industry consolidations. For those of us in the industry in 1984, the massive consolidation that occurred in the industry hit home for a lot of us. When people talk about the age gap in today’s industry workers, that was the event that drove a lot of talent and workers out of the oil industry. They never came back.
A lot of the managers in today’s companies are very aware of that talent drain and are likely to keep a tighter grip on newer employees with valuable skill sets. This downturn will add to the knowledge drain as a lot of older workers take advantage of retirement packages—some of them again.
Another factor that will likely lessen the impact of this downturn is pad drilling. The industry may see fewer rigs working, but the ones that are working will be operating much more efficiently. You can look for more wells drilled from single pads to cut down on the cost of rig moves. More operators are likely to contract for dedicated frack crews to insure availability.
The turnaround will occur when demand increases. That is already starting to happen with motorists taking advantage of low gasoline prices and driving more. At the same time, the decrease in the rig count has some speculators guessing that production will be cut back as well. That has already resulted in an uptick of the price of oil.
I am not going to predict when the bottom of this downturn will occur. As someone told me a long time ago, the only reason for economic forecasting is to make astrology look good. The industry has gone through this before and will do so again.
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