Five years ago, global oil services giant Schlumberger employed 123,000 people across the globe. These days, even as the global industry is pumping record amounts of oil and gas, Schlumberger continues to shed staff. The company’s current headcount is less than 100,000 and falling.

Blame goes to a surge in oil exploration automation. Reduced demand for the oil industry “roughnecks” and other contractors that work for oil services firms like Schlumberger is hitting the bottom line. The SPDR S&P Oil & Gas Equipment & Services ETF (XES), for example, is down 4.1 percent year-to-date (despite a steady rise in oil prices) and down 15.7 percent annually over the past five years.

But the oil services sector’s pain is clearly the exploration and production (E&P) sector’s gain. The SPDR S&P Oil & Gas Exploration & Production ETF (XOP), for example, is up almost 10 percent this year, with all of those gains coming since the start of April. While oil prices have been in an uptrend for the past year, investors were slow to embrace the E&P firms until it became clear that prices would stay sustainably above $60.

The XOP fund, which carries a 0.35 percent expense ratio, takes a modified equal-weight approach. As a result, two-thirds of the portfolio is invested in small and mid-cap drillers. In contrast, the iShares U.S. Oil & Gas Exploration & Production ETF (IEO) has two-thirds of its portfolio invested in large-cap drillers. That fund sports a 0.43 percent expense ratio, and it up 13.4 percent year-to-date.

Over the past five years, a focus on large drillers has proved to be a safer haven. The iShares fund has traded roughly flat in that time, while the XOP fund has lost more than 7 percent annually on average. That reflects the clear distress seen by the smaller drillers when oil prices slumped a few years ago.

The smaller drillers are in vastly better shape these days, says Matthew Bartolini, head of SPDR Americas research. While net debt/EBITDA ratios had soared among this group a few years back, Bartolini says that “leverage in the system has come down” as debt loads have fallen and cash flow has risen. He adds that net profits for companies in the SPDR S&P Oil & Gas Exploration & Production ETF surged 157 percent in the second quarter, compared to a year ago.

Bartolini says that higher oil prices have been a key determinant in that profit comeback. And it helps that industry output has surged. U.S. oil production has risen from around 8.5 million barrels per day two years ago to around 10.7 million barrels today, according to U.S. Energy Information Administration.

Industry profits are also being aided by the rising amount of drilling automation now taking place. Cory Garcia, portfolio manager for OppenheimerFunds SteelPath MLP energy investment platform, says that cost savings stemming from tech investments in drilling are just getting going.

“It’s still the early days. Firms see a lot of low-hanging fruit that they can capture from faster drilling and well completion times,” says Garcia, adding that technology is also helping to squeeze more oil and gas from each well.

These cost-effective moves are all part of a larger shift underway among drillers to prove their ability to produce robust cash flows. In the past, these firms were often accused of focusing more on spending for growth rather than meeting cash flow targets. Now, “they’re transitioning from an investment phase and towards a harvesting (of profits) phase,” says Brandon Rakszawski, director of ETF product development at VanEck.

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