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Energy industry slowdown means idle rigs cuts in jobs

John Cromling isn’ t jumping out any windows, even though the struggles of the oil and gas industry have idled a large number of…


John Cromling isn’ t jumping out any windows, even though the struggles of the oil and gas industry have idled a large number of Tulsa-based Unit Corp.’ s drilling rigs.
That has forced Unit to lay off about 800 employees in Oklahoma.

 

«That’ s really the only thing you can do to cope with the market. The market is what it is,” said Cromling, executive vice president of Unit’ s drilling company. «You just have to figure out how to stay alive with it being that.”

He said only about 35 percent of the company’ s rigs are working, compared with a 97 percent utilization rate last year.

Cromling acknowledged 2008 was an atypical year, but he estimated Unit’ s utilization rate averaged about 80 percent over the past five years.

He said the numbers don’ t provide a pure picture of the situation because of the variety of projects available.

A precipitous drop in natural gas prices has forced many oil and gas companies to limit their exploration efforts.

Drilling costs typically take up about half of the capital expenditure costs of Oklahoma City-based Chaparral Energy Inc., officials said.

Hunkering down
The independent oil and gas producer is in «hunker down” mode in 2009 because of the downturn in the commodity markets, slashing its capital expenditure budget from more than $300 million in 2008 to about $120 million for 2009.

Chaparral had as many as a dozen rigs working last year, but now is down to just one company-owned rig, said Diane Montgomery, the company’ s director of corporate finance.

Cromling said Unit’ s drilling company has been able to survive because it has virtually no debt.

«That makes us have the ability to withstand a downturn like this,” he said, «when other companies couldn’ t.”

Necessary cuts
Unit also has slashed its payroll, like other drilling companies. Cromling said Unit has been forced to reduce its manpower to a level in line with the number of rigs it has operating.

The group that suffers the most is the men who work on the rigs, he said.

«There’ s 22 guys on each rig, so if a rig goes down then those people are just laid off,” he said. «We don’ t have a place for them.”

Cromling said the company has tried to keep its best people on the rigs that are still operating.

«We don’ t think this is going to be something that lasts forever, so we’ re not going to just decimate the people we’ ve taken years to build up, just to be able to weather a storm,” he said.

Cromling said the executives have tried to make the company run as efficiently as possible by cutting costs where possible.

«It’ s a simple answer. You just take care of business especially carefully and don’ t waste anything,” he said. «You should be doing that all the time but it’ s just more critical now.”

Cromling was hesitant to declare an end to the industry’ s slump amid rising natural gas prices, although he noted the overall rig count for the United States has increased in the last month.

Seven-year low
Natural gas prices dipped below $3 per thousand cubic feet earlier this month, hitting a seven-year low. Prices rebounded this week, closing Thursday at $3.458 per thousand cubic feet.


«I’ d like to say that that’ s (earlier lows) the bottom, and of course we all hope that’ s the bottom, but I don’ t really know if we have enough information to say that for sure,” he said. «It appears like it won’ t get any lower, for the time being. But who knows?”

 

 

 

Source : newsok