Chart of the Day - The Exploding Labor Intensity of Shale Drilling

Oil Pro ^ | 2/26/2014 | Joseph Triepke

[thackney]

Since 2010, the phrase "rising service intensity" of unconventional drilling and completions has become a household term. What this refers to is the fact that more stages per well and longer horizontal laterals demand more of oil service contractors than ever before. More proppant, more frac fluid, more horsepower, more water, more infrastructure, more transportation, etc. Several other associated trends include more wells drilled per rig and rising service company revenues per rig.

A phrase you don't hear as often is "rising labor intensity" of unconventional drilling and completions. But we would argue that this is just as important. Just as more iron and consumables are needed to break apart shale rock and extract the hydrocarbon riches within, more people are needed as well. The labor force is becoming increasingly specialized, there is an all out war on talent, and labor is frequently cited as a bottleneck in delivering drilling programs.

As such, we thought it'd be interesting to try and quantify how the "labor intensity" of drilling in the US has changed over the course of the shale revolution. In the chart below, we examine at the ratio of US O&G industry employees vs. US rig count. The growth has been explosive, and confirms that increasing intensity isn't just for iron - it applies to human capital as well. For each rig working, many more people are needed now than before. In fact, from 2006 to 2013, headcount per US rig has grown 40% (from about 240 to over 335). Over such a short period, this is a massive step change, and this helps to explain why there is so much hiring demand in the US O&G sector.

Now just think about what will happen when the international unconventional plays finally take off. Not only will they require the same sort of labor intensity for drilling and completions, but they also will require massive infrastructure building projects. While the O&G business is cyclical, it is clear to us that it will be a key job creation engine in the global economy for many years to come.

[thackney]

Note: The 2009 spike is an anomaly because of the rig count collapse following the financial crisis, and should be disregarded.

[umgud]

A very bright spot in the labor market. Vexing too.

[SierraWasp]

Are they hiring any good lookin 72 year old males with coronary artery disease, diabetes and high blood pressure, suffering with sciatica and obesity???

Just askin… (grin)

[EERinOK]

Can you cook?

:)

[SierraWasp]

No! As I’ve told my wonderful spouse for nearly 52 years, “I’m not good with food prep!” Sure is a good thing she is or I’d have starved to death long ago!!!