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The future impact of the industry turndown on oil and gas contractors

oil and gas industry downturn contractors

It seems a lifetime ago that people were discussing the geopolitics at play between Saudi, Russia and the USA, twinned with a respiratory illness that originated in China doing the rounds doesn’t it? Spring passed in a blur of home working and home workouts, with a heavy sprinkle of zoom quizzes, baking and home improvements, and in the blink of an eye it is October.

The world needs oil and I don’t think that’s up for discussion, energy aside the world we live in is dependent on petroleum based products, be it car tyres, sports equipment, household items, cosmetics, construction materials, or a plethora of other things that most people wouldn’t even associate with the thick black crude being extracted from the earth.

The COVID pandemic has undoubtably created a real level of uncertainty, we have seen a huge amount of restructuring, downsizing, and temporary layoffs; but call it what you want, redundancies and contract terminations have been prevalent.

But how will the changing landscape of the Oil & Gas industry have an impact on contractors?

 

Short Term

Initially while companies panicked in light of the pandemic and oil price crash, they put projects on hold and took stock of their position, letting most contractors go to ease outgoings and freezing any recruitment for the foreseeable.

 

Medium Term

As things begin to move again, projects will either start up, or continue with operations and require engineering support, but the question is: will they take the risk of engaging permanent staff members and the associated employment costs / obligations? The alternative option would be an increased number of short-term contracts, with extension options to allow work to continue but with the agility to downsize / expand easily to match requirements.

 

Long Term

Well, who knows? I suppose if things went back to ‘normal’, we would see a balance struck between permanent and contractor workforces something similar to what we have now, because that is widely accepted as operationally optimal, combining flexibility with loyalty and business knowledge.

 

So, what do I think? If I had a gun to my head, I would be placing my bets on a higher contingency percentage if anything, simply for the reason that whilst generally it’s less cost effective in the long run, it does offer the ability to take on a larger workload without having to engage staff members who in all likelihood there wouldn’t be a requirement for come the end of the project.

As always, I’d be delighted to get your thoughts in the comments below or by email; amccormick@leap29.com

Posted by Angus McCormick