DURING his Presidential campaign in 2016, President Donald J Trump announced that “American energy dominance will be declared a strategic economic and foreign policy goal of the United States.” Even before he took office on January 20, 2017, that bold, unambiguous statement was resonating through the US economy—and the oil industry.
President Trump’s America-first energy vision states the following:
• Make America energy independent, create millions of new jobs, and protect clean air and clean water.
• Declare American energy dominance a strategic economic and foreign policy goal of the United States.
• Unleash America’s $50 trillion in untapped shale oil and natural gas reserves, plus hundreds of years in clean coal reserves.
• Become, and stay, totally independent of any need to import energy from the OPEC cartel or any nations hostile to our interests.
President Trump’s energy vision, combined with OPEC moves over the past couple of months to trim production, has re-energized US oilfield operations. December 2016 saw the biggest US drilling gain in three decades—with another 65 rigs back in service.
Crude oil prices seem to be staying above $50 a barrel, and there is a growing sense that $60 a barrel would be realistic in 2017. Natural gas prices also are up. Oilfield service companies are reporting that total work hours ticked up in Q4 2016.
This is all good news, according to Kenny Jordan, executive director of the Association of Energy Service Companies (AESC). “The Trump Administration has reached out to oil industry groups for recommendations on various issues, and we are optimistic about potential tax and regulatory cuts,” he says. “Our members are ecstatic about the team President Trump has put together. These are industry leaders, not career politicians in most cases.”
With drilling rigs beginning to move back into the oilfield, some are beginning to wonder if the oilfield service sector will be able to keep up with demand. Jordan says it depends on how quickly drilling and production operations ramp up.
“Some service providers went out of business, and many others parked equipment for the past couple of years,” he says. “Almost all of the service companies have laid off employees, and that is a critical factor. Many workers left the oil industry and are not likely to come back. Oilfield service companies will have to hire and train a whole new group of workers.”
Oilfield drivers are among those who left in large numbers. As a result demand for certain essential oilfield transport services could exceed supply in the coming months.
For instance, Joe Triepke, founder and principal research analyst at InfillThinking.com recently wrote in Oilpro that last-mile frac sand logistics could become a problem area. He wrote that frac customers are already reporting that they are having trouble finding enough trucks to haul frac sand and other proppant from transload facilities to the well sites.
Triepke pointed out that many trucking companies left the oilfield when the boom times ended. Some frac sand haulers shut down and, most critically, many thousands of truck drivers left to find jobs in other industries.
Oil producers have only themselves to blame for the looming shortage in drilling and production logistics services. Many of the production companies have bragged about how they cut their costs over the past two years by 20% to 30%, much of the savings coming at the expense of the oilfield service providers.
Service companies that survived had to cut operating costs to the bone. Jordan says the survivors are in reasonably good shape today, and most were debt free when the bottom dropped out of the crude oil market.
They are making a little money at least, but they aren’t banking a lot. They are getting through the cycle.
Certainly, not all truck drivers left the oilfield either. Some are still hauling crude oil and condensate. Others are driving vacuum transports handling flow-back and process water coming out of the wells.
Significant amounts of equipment—especially frac units, well-service rigs, and vacuum trailers—are still sitting, though. “There is still an over-supply of equipment,” Jordan says. “During this downturn, companies kept equipment and just parked it.
“They felt the oilfield would come back, and they wanted to be ready. It’s going to cost some money to get that equipment back on the road, though.”
So, what is in store for the oilfield service sector over the course of this year? Jordan says he believes the companies will be 10% to 20% busier than in 2016. The Permian Basin in Texas will remain one of the most active oilfields in the world, and drilling in the Bakken in North Dakota also will grow.
The service sector will continue to experience over capacity, but that could be mitigated by a worker shortage. Jordan suggests it may be difficult to attract enough workers. Experienced workers may be unwilling to return, and new workers will take a lot of time and effort to train.
Jordan sees the possibility of bidding wars for truck drivers in the coming months. “Recruiters certainly are going to have their work cut out for them,” he says.
Higher wages are almost a certainty. “Oilfield service wages shrank 20% to 50% over the past several years,” Jordan says. “Increased demand for workers definitely will move wages higher. We could see truck drivers making $100,000 a year, depending on how much overtime they want to work.”
Jordan says it is good to see the return of optimism in the oilfield. “The election of President Trump was the beginning of what we hope will be better times and a stronger economy,” he says. ♦