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The fall to six-year lows in oil prices has been swift and unexpected. The pace of energy sector layoffs in recent weeks has been similarly quick, if not so surprising.
Job cuts are inevitable as oil and gas companies watch commodity prices tumble, but layoffs today could have significant ramifications for the sector tomorrow. For a variety of reasons specific to the industry, energy companies could find themselves in a situation later where skilled workers are hard to replace.
The rise in pink slips at oil-related enterprises sent overall job cuts in January soaring 40 percent from the previous month, to a nearly two-year high, Challenger, Gray & Christmas reported last week. The firm attributed 21,322 layoffs last month to falling crude prices, compared with 14,262 total cuts in 2014.
"We're absolutely seeing a slowdown. There are pockets of activity, but the industry has not just tapped the brakes, but hit them pretty hard," said Jeff Bush, president of Fort Worth, Texas-based oil and gas consultant CSI Recruiting.
There is no crisis yet, but the picture is significantly different from three months ago, he said. Large independent oil and production companies are on lockdown, issuing hiring freezes and closing branch offices.
The downturn among contract workers is likely just the beginning. When producers terminate contracts or allow them to expire, the next step is usually cuts in other personnel areas, Bush said.
The typical cycle of cutbacks has already begun, said Gladney B. Darroh, president and CEO of Houston-based Piper-Morgan Associates Personnel.
Oilfield services companies have announced layoffs of thousands of workers in recent weeks. Those businesses are first to cut because they are dependent on contracts with exploration and production companies, many of which are scaling back operations and can no longer tap the high-yield debt that fueled their growth.
E&P companies have begun cutting capital budgets, and will look to trim their workforce first by offering early retirement packages, Darroh told CNBC. If they cannot make the cuts they need to balance the books through enhanced exit offers, forced retirements will follow, he said.
"If (oil) prices stay in this range of $45 to $55 a barrel, if that persists in the next six months, we'll see companies taking more dramatic steps to rationalize their workforce in light of these new prices," he said.
In that scenario, companies face the danger of cutting too far and putting too much stress on the remaining workers, some of whom could head for the exit, Darroh said. In particular, older workers who have seen their portfolios recover from the financial crisis may walk, Bush added.
That raises another concern: Layoffs could hasten the onset of the so-called great crew change. The oil industry employs a lot of entry-level workers and veterans with 25 years of experience or more, but midcareer professionals are in short supply, leaving few candidates to replace the seasoned pros.
The shortage goes back to the 1980s oil bust, after which hiring came to a standstill and many workers either left the industry or discouraged their children from entering the field. During that period, a number of colleges either scaled back or dropped petroleum engineering programs.
"There are very few people that entered the industry from 1984 to 1999," Bush said. "Essentially, there was no talent add of any kind of quantity in that period of time."
As retirements spike, oil companies could find it hard to bridge the gap.
Companies that make significant cuts may also have to pay a premium to rehire workers when oil prices recover, said Mike Rowe, vice president of exploration and production research at Tudor Pickering Holt.
"They will be very careful about reducing staff, because they've seen cycles like this before where commodity prices are weak for a certain period time, they lay off employees and they're not well-positioned to get access to high-quality talent," he said.
Many furloughed workers will have options outside the oil industry. Construction companies have struggled to find craft workers since 2009, when laborers flocked to the oil industry, drawn by big pay packages and bonuses underwritten by the shale oil boom.
Today, the supply of workers remains tight in many parts of the United States, and especially in oil country. Between 2008 and 2013, the percentage of the total construction workforce engaged in direct oil and gas construction grew from 3.8 percent to 6.4 percent, according to Houston-based FMI Capital Advisors.
Some of the workers in shortest supply are among those that will be most in demand over the next five years, including heavy equipment operators and ironworkers. Construction recruiters have also had a hard time finding welders and pipe-fitters.
Most of those workers will be able to make the jump to construction, said Scott Duncan, vice president at FMI.
Further, construction work will relocate former energy workers from remote oilfields in places like Williston, North Dakota, to urban and suburban locales, he said. Those workers may not be excited about returning to the field, Duncan said.
"It can be really hard to recruit them back into the industry without some really strong financial incentives," he added.