Why Oil Rig Counts May Not Mean as Much Any Longer

Over the past several years, one of the key metrics of the health and activity within the oil and gas industry has been the number of active rigs. This metric has been watched to gauge the cycles of activity in the industry over the past few years. With rig counts beginning to rise again, they still remain significantly below the peak in 2014, and the reason may be due in part to continued advancements in automation.

Automation has come to the oil and gas industry in the form of a reduced number of rigs to achieve the same output as well as reduced size in the rig crews. A push for automation can help producers in many oil and gas formations to balance their drilling costs to ensure that their cost of production can remain competitive in a market that has not been favorable in its pricing for producers.  James West, an analyst at Evercore ISI who was quoted in a recent article in Businessweek, stated that “We [the oil and gas industry] got fat and bloated.”  He says the two-and-a-half-year downturn gave executives time to rethink the mix of human labor and automated machinery in the oil fields.  While automation is not new in the industry, what is new in some places is replacing human workers who handled and assembled the piping for wells being replaced with automated machinery. While this is leads to more cost effective drilling, it reduces the number of workers needed on the well sites.  

While there has been much written about planned waves of automation coming to the industry, some of the challenge now, is that many companies are wary about touting too much automation since it will result in further cutting jobs beyond the 440,000 already lost since the peak. While the Trump administration is planning for an industry boom through the loosening of regulations and expanding drilling on federal lands, it may not bring back as many jobs as hoped or expected if automation continues to increase. 

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