It is well-known that shale resource development has resurrected the US petroleum industry over the past decade – as measured by increased oil and gas production. It has revitalized the oil service sector as operators have increased their share of spending on premium services such as hydraulic fracturing and directional drilling. What has been less noticed is the degree to which shale development – as separate from commodity prices –  is having an impact on employment in the oil service sector. And it is.

The US Bureau of Labor Statistics tracks employment in the oil service sector as a sub-segment of the mining industry in a category which it calls “support activities for oil and gas operations – production and non-supervisory employees”. As might be expected, oil service employment tends to rise and fall with drilling activity, which we know broadly moves in conjunction with oil and gas prices.
 
During the drilling bust of the 1990s, an average of about 80,000 people were employed in the oil service sector. As commodity prices and drilling activity began to rise after 2000, oil service sector employment likewise picked up and stood at about 110,000 in 2005 on the cusp of the shale revolution.

As oil prices rose from $25 to $100 after 2005 and the industry shifted the bulk of its activity toward shale development, employment again grew substantially, peaking at about 270,000 in 2014. Of course, as operators cut back their capital spending in 2015 and 2016 in response to the drop in oil prices, employment fell by almost 50%, reaching a low of about 145,000 workers in mid-2016. Currently employment has recovered to more than 175,000 with the rise in drilling activity over the past year.

Beyond these headline numbers, what is striking to us is how labor “intensity” has risen as the US oilpatch has embraced shale resource development. On the eve of the shale revolution the industry employed an average of 2.5 oil service sector workers per new well drilled, a figure which had been little changed for over 20 years; however, since 2005 labor intensity has risen at a 9% CAGR such that today an average of 7.0 oil service sector workers are employed per new well drilled. 

It seems clear that labor intensity is being driven by logistics. Labor per well has risen as consumables – drilling fluids, cement, proppants, water, etc. – per well has increased. Logistical improvements implemented in recent years by operators and oil service firms alike have had an impact – labor intensity has not risen as fast as material consumption has gone up. With lateral length continuing to increase and proppant use per lateral foot continuing to rise it is to be expected that labor intensity will also keep growing.  It seems unlikely that increased wellsite automation will impact labor intensity going forward, since the relatively low cost of oil service labor – currently around $32/hour – will limit the extent to which it is economical to substitute a robot for a worker.