U.S. Oil, Imported Workers
Oil staffing and service companies are accused of illegally employing non-U.S. workers on rigs in the Gulf of Mexico—and displacing American workers
by Moira Herbst
To Daryl Johnson of Orange, Tex., work as a rigger on pipe-laying barges seemed like a pretty sure bet. The pay was good—$18.50 an hour—and with oil exploration booming, Johnson felt secure with Houston-based Horizon Offshore Contractors, which had hired him in 1999. But Johnson, speaking through his attorney, says he got concerned when managers told him there were no openings for friends whom he referred for jobs, even while Horizon continued to hire Mexican and Malaysian nationals. Then, in 2007, Johnson lost his job. "They gave me no explanation," says Johnson.
However, in Johnson's mind and in those of other oil workers in the Gulf, the connection to the cheaper foreign workers is clear. His allegations are part of a lawsuit moving forward in federal court in Texas, which claims that a group of U.S. energy services companies operating in U.S. waters on the Outer Continental Shelf in the Gulf of Mexico are using workers recruited from Malaysia, Mexico, the Philippines, and other countries to displace U.S. workers, at less than half of the pay. According to the lawsuit, the staffing is illegal because non-U.S. workers are working without proper visas aboard foreign-flagged vessels that are in fact controlled by American companies.
For years, immigration has been a tense topic, mostly centered around the estimated 12 million low-wage, undocumented workers and the ability of Silicon Valley companies to secure extra visas (BusinessWeek, 3/6/08) to import thousands of skilled technology workers. But now, as a recession looms and thePresidential election heats up (BusinessWeek.com, 7/28/08), attention is turning to another booming industry: oil services. It's not widely known, but both onshore and offshore in the Gulf of Mexico, non-U.S. workers can be found doing shipbuilding, pipe-fitting, welding, rigging, and related jobs. Some of them are here on temporary visas and some may be undocumented.
Johnson's suit, Cunningham, et al v. Offshore Specialty Fabricators, Inc. et al, was filed in U.S. District Court in the Eastern District of Texas, Texarkana Div. in December 2004. On July 21 the judge issued a scheduling order that calls for both sides to begin discovery and depositions on Aug. 10.
The case is about working conditions for both U.S. and non-U.S. workers, says plaintiff's attorney Tony Buzbee of Buzbee Law Firm in Galveston, Tex. The foreign workers "were paid pennies on the dollar, worked grueling hours for days on end, and were essentially captives on the rigs because they were paid when repatriated," says Buzbee. "This suit seeks remedy for the American workers who were paid less due to wage market suppression or who lost their jobs due to being replaced."
The oil services and staffing companies named as defendants in the suit declined to comment.
It might seem like there is plenty of money to go around for the companies that explore for and produce oil. Crude-oil futures prices, after all, have jumped by 64% over the past year, to $125 a barrel. The largest untapped fields are to be found on the ocean floor, which is in part why spending on offshore drilling worldwide rose from $29.4 billion in 2000 to $61.8 billion in 2007 and will reach at least $77 billion by 2010, according to Spears & Associates, a Tulsa energy consulting firm.
However, with high demand has come a growing shortage of specialized drilling rigs. That has driven the drilling costs for some of the newest deepwater rigs in the Gulf of Mexico—the U.S.'s top source of domestic oil and natural gas supplies—to about $600,000 a day, compared with $150,000 a day in 2002. Experts say rising costs for vessels create a big incentive for companies to cut their labor costs.
"The way to make a lot of money in energy is to keep labor costs down," say Katharine Donato, professor of sociology at Vanderbilt University, who has published research on immigration to the Gulf of Mexico. "Companies have access to international labor pools through a variety of avenues. They just have to figure out a way to pay [the workers]."
In a 2005 deposition, James Ireland, vice-president of the staffing firm Oceanwide Houston, a subsidiary of Netherlands-based Humares named in the suit, explained how his company met the challenge. He said Oceanwide took to "outsourcing to the offshore." He described the process of meeting with a client such as Stolt Offshore and discussing its employment needs, and then contacting another Humares subsidiary to fill the order. "We would send an e-mail or a fax to Cyprus (where OWI, another subsidiary of Humares, is located) saying we have an order for eight riggers," he said. "Sometimes you're more specific, maybe they want Malaysians or maybe they want Mexicans or whatever the nationality may be, please source and advise."
Ireland said a contractor such as OWI would recruit workers from communities such as the Iban tribe in the jungles of Malaysia. The recruited workers were taken to the U.S. embassy in their home countries, where they told the embassy that they would work on foreign-flagged vessels. That would place them outside the requirements of U.S. labor and immigration laws. The staffing firm then flew the workers to Houston or another Gulf-area location, Ireland said, where it informed customs that the workers were going to work for foreign vessels offshore in the Gulf of Mexico. After clearing customs, they would then be picked up by a shipping agent, taken to a shore-based helicopter base, and then to vessels offshore.
Ultimately, the lawsuit alleges, the workers perform projects for U.S. energy firms such as Houston-basedJ. Ray McDermott Inc., Houston-based Offshore Specialty Fabricators, Cal Dive International (DVR), Carlyss ( La.)-based Global Industries (GLBL), and Stolt Offshore, now Acergy (ACGY). Allegedly, the vessels are misleadingly marked with the flags of the Netherlands and Cyprus, meaning the crew is under the jurisdiction of those countries, even though they are performing work for U.S. companies.
Ireland's office at Oceanwide Houston declined requests for comment. Spokespeople for Humares and its subsidiaries declined to comment on the issues raised in the suit. A spokeswoman for C-Mar Group, another staffing company named in the suit, also declined to comment.
Once aboard the vessels, the workers are paid 20%-40% of what a U.S. worker such as Johnson would earn, says the plaintiff's attorney. For example, Jenggi Kaloum, an Iban worker for Stolt Offshore referenced in the 2005 Ireland deposition, was paid $40 per 12-hour day, while an American worker would make $200 or more per day for the same work. Kaloum could not be reached for comment. Once offshore, the workers can remain on vessels for 150 days in a row, earning no overtime, says Buzbee. He says the workers are paid only when they return to their home countries with money routed by the staffing firm.
Spokespersons for Offshore Specialty Fabricators, Offshore Express, J. Ray McDermott, Global Industries, and Acergy declined to comment on the lawsuit or on their hiring practices for Gulf of Mexico projects. A representative for Cal Dive did not return calls requesting comment. Buzbee says he believes defense attorneys will argue that the U.S. service companies did not know that the vessels were flying foreign flags. The case is expected to be heard in 2009.
With Brian Grow and Steve LeVine.
Herbst is a reporter for BusinessWeek.com in New York.
August 3, 2008