Last year, our Oil & Gas was in a great boom phase, and there were lots of projects coming with vacancies filling up. We (in board meetings) every few months were being told and assured that work is coming and lots of it. Indeed, we had a pile of backlog always in work, and 2016 looked so promising to us. But then all of a sudden, at the pace we had work coming got slow. Rumours started that company has taken out some contractual and much more. Although none of them was real, until 2016 started. Suddenly company started running out of work or had existing tasks to complete quickly before that goes out of hand too. Does that call for Recession? At least for me, Yes!
Why is Recession Back?
A slump is petroleum industry is not a new thing we may hear. We have seen these before, like in 2009-2010 and now after five years, its back. The only difference between the previous and the current one is, this slump is affecting jobs worldwide. While the production rate has not slowed down, the requirement of Oil is going flat or dropping. Of course, time will come when the markets stabilize, and prices of Oil may rise again. But this time, I think it'll be slow, and there are many Geopolitical issues which first needs to be resolved.
Image Source: CNN
A recession will keep coming if the Oil product companies may not lower down the production. They're simply producing more Oil & selling it on lower profit margins and cutting down the jobs. Till now, I have heard job-cutting at global giants like Royal Dutch Shell, Chevron and Haliburton, where thousands of people are in the process or have lost the job.
If you have heard people returning from middle-east countries, the biggest reason of that is "The closer you're to the wellhead, the quicker you are to lose your job." Of course, that makes sense, as those are highly paid jobs, and a company makes a quick cut by letting them loose. I have no idea about how many people have lost their job in India, but in Texas, USA, exploration and production companies have shed at least 60,000 jobs. These many people represent 1/5th of total manpower in Texas. And this will get worse, companies will cut on expenses more dramatically, and this time even employees on Payrolls too have to go.
In recent updates, Oil production king, Saudi Arabia has refused to slash output to bolster prices, and producers at the USA has already had a steady flow of oil wells, which is playing off investments they had done in past, which has sky-rocketed American energy production. So, the scenario is, the USA is not longed to rely upon and import Oil from outside, which has resulted in Oil Price drops.
Because of such scenarios, many companies are running in negative cash flow, and that's not a sustainable dynamic. It's a game of chicken, with energy analysts closely watching to see where production cuts take place in an effort to boost prices.
The only good news I get to hear is, midstream sector - pipeline and energy transport companies are not in the same kind of loss as producers for obvious reasons. Hence, they are accounted for only 0.4% of the job cuts in 2015-16. Even refiners at downstream segment have enjoyed a stable period at this time.
Have You Lost Your Job Recently Because of Recession?
I am right now, not serving my services to this Industry, but shifted months back after sensing the recession coming. I don't know, but I don't see this industry having a long sustainable period in India. Not even sure, for how many years, design companies would sustain.
Recently I heard SKEC moving out from India, or some departments are not operational. I don't have exact information about that. Also, Fluor Daniel didn't renew a good percentage of Contractual and even rumours are there that people on Payroll are also not safe, and few have been laid off. Technip India hasn't many projects since a long period of time, and the situation is still the same.
As I said, I am not inside any company; hence, I am not much updated about the scenario of companies around. If you're reading this article, I hope you can update me what kind of situation you're into.
Do let me know how are things in your company in comments, Good or Bad, doesn't matter. Let the world know what situation we Indians are into right now!!