As many of you know, I live in Houston. While most of the country is celebrating lower prices at the pump, the companies in this town are cutting budgets, lowering forecasts, and worst of all, laying off massive numbers of people.
The stories are always heartbreaking and you never want to see somebody lose a job, but I also keep thinking, why the hell do these people need to be worried about a downturn? These are not cashiers at Wal-Mart or waitresses, or any other lower end job. These are largely engineers, who have made 100k+ salaries since the day they graduated college (if they’re in their 20-30’s). They’re field workers, who with a high school diploma can easily make $80-150k with hard work and a bit of experience. They’re accounting and finance professionals. Everyone involved works in one of the most lucrative sectors of the economy. These are WELL PAID PEOPLE.
If you know anything about oil and gas, you know it is cyclical. Oil has dropped from $115 to $40 in 6 months. In 2008 oil dropped from over $100 to $30. Midland Texas (small town middle of nowhere) had a Rolls Royce dealership in the 70’s. Shortly after that we had an entire lost decade for Houston and the oil business. Everyone coming in to this industry should have their eyes open to the fact that we don’t control price. This isn’t Hershey, Diageo, or Nestle. We don’t get to raise our prices a nice 2-3% per year and keep printing money. This is particularly problematic in an industry that has to make enormous capital expenditures (billions and billions) with 5-10 year time horizons before any payback, when pricing can swing by over 50% in a few months.
So where are all the stories about the engineers saying, “oh this isn’t a big deal. We know it happens, so we’ve paid down off our house and I have an emergency fund to cover 12 months expenses. I think we’re actually going to do some traveling and look for a job when prices come back.” And lets not forget folks, almost everyone involved will get severence of some sort, for probably 6-12 months, plus unemployment. There is no possible way that any intelligent person, who has been working in the industry for more than 3 or 4 years, shouldn’t be able to maintain their lifestyle for a BARE MINIMUM of a year between all those sources of cash. Yet I’ve never heard that story. Have you?
Per Bloomberg, a report last week from global outplacement firm Challenger, Gray & Christmas showed 20,193, or 38 percent, of the 53,041 announced job cuts in January were in the energy industry.
I’m incredibly sorry for anyone who has been caught in this downturn. It could certainly happen to me if things get worse over the next 12 months. That’s why it’s so important for everyone to avoid lifestyle creep. Don’t buy a boat. Don’t purchase a house that maxes you out. Keep your old car. Keep those recurring bills low. Save 6-12 months worth of expenses. Basically, just do the practical, obvious things you know you should do and you’ll be fine.
What does preparing get you?
Peace of Mind
You know that you don’t have any worries about putting a roof over your head and food on the table. You’re not going to lose your house. You will sleep better at night, and if the worse happens, you won’t be paralyzed by fear. When you have 12 months expenses in the bank, there’s not a whole lot to worry about, and this assumes no other income! If your spouse works, or you can pick up part-time work, or you get that wonderful severance, that 12 months of expenses can stretch even further.
Just as important, it helps your family feel secure. Your spouse isn’t scared about losing the house and kids aren’t picking up the bad vibe from the adults and becoming worried about something they can’t change or don’t understand.
You Have Options
Desperate people are not in a position to be discerning or picky. If you live paycheck to paycheck, and something happens to your job, your company, or your industry, you will be forced to take the first job that comes along. This might mean a substantial drop in salary, title, responsibility, or just simply doing work you don’t want to do for people you don’t want to do it for.
When you’ve been sure to give yourself breathing room, you can be picky. You don’t have to blindly send out your resume to any and all employers and take the first shit job that comes along. You can take a vacation, recharge your batteries, evaluate what’s important and move forward. It allows time to network, get in touch with old friends and colleagues, and find the thing that’s right for you. It also gives you the ability to bargain when you do find a role.
Like MMM says, stop screwing your future self. Do yourself a favor and delay gratification.
For more on layoffs see below:
- Oil prices drop (Houston Chronicle)
- Money dries up for oil and gas layoffs (Wolfstreet)
- Roughnecks and roustabouts start seeing layoffs (Bloomberg)
- Layoffs hit the oil patch (Forbes)
- On to Plan B as oil work stalls (NYT)
- Next for oil – mergers and layoffs (CNBC)
List of known layoffs per Bloomberg:
- Petroleos Mexicanos (Pemex): 10,000 (in Mexico).
- Baker Hughes: 7,000.
- Halliburton: 1,000+ (Eastern hemisphere).
- Suncor: 1,000 (Canadian oil sands).
- Ensign Energy Services: 700 (in California)
- U.S. Steel: 700. (Cleveland and Houston).
- BP : hundreds.
- Schlumberger: 9,000.
- Tenaris : 300 (Mississippi).
- Hercules Offshore: 300.
- Shell: 300 (Canadian oil sands).
- Apache Corp.: 250.
- OFS Energy: 150.
- EOG Resources EOG: 150 (Canada).
- Enbridge: 100
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