This recession is no 1999 redux

— In a fast-receding global economy, a handful of oil and oil services companies have kicked off 2009 with the ominous but likely not surprising news that they are readying pink slips in anticipation of worker layoffs that will come very soon.

You'd think energy sector workers, who are fed a steady diet year after year of comments about the cyclical nature of industry, would be used to seeing pink by now. But what's different this time is the speed at which the layoffs were decided. In fact, velocity seems to be the hallmark of the current economic downturn. Everything is happening at breakneck speed, from the fall of the House of Lehman in September to the banking sector bailout, the drying up of bank credit, the subsequent rash of capital budget cuts and drops in the drilling rig count. Back in the downturn of 1998-1999 when oil fell below $17/barrel from $20-$21 a few months before, it took industry the better part of a year to lay people off, versus four months this time around as oil dropped from $100/barrel in September to the $40s today. And it took the same four months for the US rig count to fall 25%, but ten years ago it took a year for the rig count to drop by the same magnitude. After years of lamenting the scarcity of skilled workers and Herculean efforts to reel them in, including poaching from other industries and even the military, why have oil companies such as ConocoPhillips and service companies Schlumberger and Baker Hughes now released them so quickly? (Correction; an originally-published reference to Apache was incorrect. As of January 29, Apache has made no layoffs.) Make no mistake: oil and services companies are still very solvent. Unlike the decade-ago downturn, when companies were spilling red ink, profits for the fourth quarter for the three companies that have reported earnings are still in the hundreds of millions to well upward of a billion dollars even though they are down versus a year ago. And in general, oil companies have less debt and more cash flows than in the late 1990s. With those kind of cushions beneath them, wouldn't it make sense for oil executives to keep people on the payroll as long as possible -- particularly since it took a Herculean effort to acquire and train them during the boom years when labor was at a premium? After all, as Weatherford CEO Bernard Duroc-Danner notes, "when the cyclical downturn turns up, the sins of omission will come home to roost." Companies are quick to point out that the layoffs targeted so far are mostly temporary or contract workers. And the number of released employees are small, about 4% or 5% of companies' total workforces. "Most people being laid off are field people," Calyon Securities oil services analyst Mark Urness said. "I doubt they are cutting too deep into geoscientists." Fear sparked by the massive scale of events leading up to the recession appears to be behind the quick moves to whittle down head counts. Oil prices, rig count drops, bailout money for banks: all were unprecedented in size or braking speed. All appeared to unravel before our eyes, and at roughly the same time. Their sheer combined bulk is "scary and unprecedented," said Sterne Agee analyst Michael Henzi, making this "different from other downturns." To be fair, oil and service companies are dealing with vast unknowns. There is no way to pin down how long the credit crunch and relatively low commodity prices will linger. "The worst thing that industry deals with is uncertainty. They just cannot put a probability" on a turnaround time frame, Oppenheimer analyst Fadel Gheit said. "No one knows how low oil prices can go, or for how long. That is the biggest problem."