It wasn't so long ago that the energy industry was the fuel that ignited employment growth in the United States. According to the U.S. Bureau of Labor Statistics, the energy boom fueled a stunning 41% rise in the nation's workforce over the past few years, which almost single-handedly pulled the nation out of the Great Recession. The industry, which supports 2.1 million jobs domestically, was expected to add another 1.1 million positions by the end of the decade. But now, the crashing price of oil has companies handing out pink slips instead of job offers.
A gusher of pink slips from service companies
Over the past couple months, oil companies have announced a large number of layoffs in response to the collapsing price of crude oil. Among the deepest cuts have come from companies that do contract work for oil companies. For example, offshore drilling contractor Hercules Offshore (UNKNOWN:HERO.DL) announced in November that it would lay off 324 workers. Those layoffs represented 15% of the company's total workforce, but were necessary because Hercules could not find work for some of its offshore drilling rigs.
More recently, oil-field service companies Halliburton (NYSE:HAL) and Schlumberger (NYSE:SLB) announced their first rounds of layoffs. Halliburton cut 1,000 jobs toward the end of last year as it started to defensively position itself for another cyclical downturn in the oil market. Chief Financial Officer Mark McCollum noted at an energy conference that the company knows how to handle these downturns: "[W]e have been here before. It's not our first rodeo."
Larger rival Schlumberger recently slashed 9,000 jobs after its fourth-quarter profit plunged 82% . This represented 7.5% of the company's global workforce and forced Schlumberger to take a $296 million charge. The downsizing, though, helps Schlumberger keep costs down so that it has more flexibility to manage the market downturn.
The first of many cuts from producers
So far, oil and gas producers have largely avoided layoffs, but that could be about to change. Apache (NYSE:APA) recently laid off 250 employees, or about 5% of its global workforce.
Apache's layoffs could prove tame compared to the cuts some of its peers might need to make. Many smaller oil companies piled on debt to pursue rapid oil production growth, but that debt could be a big problem if oil prices don't improve. Some energy analysts predict a massive energy bond default wave will hit the industry in the coming years. And a large wave of pink slips is likely to precede defaults as oil producers slash costs in order to stay afloat.
The energy industry's history is filled with booms and busts, leading to cyclical layoffs and then hiring sprees. While no one knows how long the current downturn will last, the U.S. energy industry will survive this bust, just as it endured all the others in the past. Furthermore, once the correction in the oil market is over, new jobs should be created as the world will still need a lot of oil -- and America has it in abundance. A career in the oil industry still holds significant promise, even if times are tough right now.