Fewer workers expected at the oil patch next year, lodging firm says

HOUSTON – An oil field lodging company’s job cuts in North America is the latest harbinger of a downturn and a dwindling number of inhabitants in Texas and North Dakota’s oil patches.

On Monday, Houston-based Civeo Corp. said it has trimmed its U.S. workforce by 45 percent and slashed its Canadian jobs by 30 percent because it expects its oil-field “man camps” to see far fewer occupants in the new world of lower oil prices. It said it will cut spending plans around 70 percent.

These camps have cropped up in North Dakota’s Bakken Shale and in West and South Texas to give drill site workers a place to live in remote locales. Civeo had more than 4,000 employees in the United States, Canada and Australia when it spun off from Oil States International earlier this year.

The layoffs follow similar announcements from Houston’s Hercules Offshore and Halliburton, a driller and an oil field service giant that expect to see profits fall as oil companies reduce equipment spending next year amid lower oil prices. They won’t be the last to announce layoffs, analysts say.

“Those are probably precursors, rather than symptoms of the oil price drop,” said R.T. Dukes, a senior analyst at research firm Wood MacKenzie. “They’re bracing for big cutbacks.”

Analysts have said they expect 500 to 800 U.S. drilling rigs to come out of service next year. Each rig employs around 100 to 150 people directly and indirectly, and with the U.S. benchmark oil price hovering in the low $50s, oil companies on average will probably have to cut back 30 percent on labor costs, Dukes said.

The analyst noted business is often difficult for oil-camp companies because real estate investors soak up much of the market by building houses and apartments in places like Williston, North Dakota or West Texas.

Civeo declined to comment on Tuesday.

In the U.S., Civeo is assessing whether it will have to close two U.S. locations, CEO Bradley Dodson told investors in a conference call on Monday.

Sinking U.S. oil-company spending “will impact our open camp and well-site operations in the Bakken and Texas regions,” Dodson said. In Canada, he added, there are “few major oil sand construction or expansion projects forecast for 2015,” and the company is closing two of its locations in Canada.

“We believe we have taken the necessary steps to position the company to the expected market and continue to pursue incremental revenue and adjust our spending accordingly,” he said.

Civeo said 35 to 40 percent of its lodge rooms in Canada are contracted currently, compared to the more than 75 percent of rooms that were spoken for at the beginning of this year.

In North Dakota, 9,500 jobs could be lost because of the 50-percent slide in oil prices, while 140,000 jobs may be lost in Texas, according to a Federal Reserve Bank of Dallas model of how oil prices impact U.S. jobs.

Hercules Offshore said it would cut 324 jobs and Halliburton said it would cut 1,000 jobs in the eastern hemisphere. Oil field giant Schlumberger had said it would take a $200 million restructuring charge related to layoffs as it retired some seismic vessels.

The pressure to reduce service costs “has dampened the holiday spirit” in the oil field service sector, John Daniel, an analyst with Houston investment banking firm Simmons & Co., wrote in a note to clients following a tour of several oil tool firms in Oklahoma.

Oil-equipment suppliers are reducing headcounts and, in a few cases, cutting wages, while land rig owners are cutting contract prices frac-sand providers are wary of price concessions, and hydraulic fracturing firms are looking at a potential lag in equipment utilization, Daniel wrote.

“While the overall mood was cautionary, the major theme emerging from this trip is confusion surrounding the potential magnitude and velocity of this impending slowdown,” the analyst said. “Such confusion and volatility are telltale signs that any guidance imparted on Q4 earnings conference calls and/or January investor trips should be met with caution.”