Oil Companies Vie to Plug Skills Gap That Threatens Supply
LONDON (Dow Jones Newswires), October 22, 2008
Falling raw material and equipment costs in a slowing world economy offer an opportunity for oil and gas companies to solve the problems of rising costs and delays at major projects, but the industry again finds itself confronting a longstanding enemy - a shortage of people with the skills and experience to lead these developments.
If efforts to plug the skills gap don't succeed, senior industry executives say oil companies' ability to tap new and challenging hydrocarbon resources fast enough to meet demand may have already have reached its limit.
"The really big strategic issue for all oil and gas companies is matching the earth's resource endowment with the capability - technology, skills and know-how - required to bring those resources to market," said BP PLC's head of exploration and production Andy Inglis in a speech at Rice University in Texas last week. Because of the skills shortage, this capability already may have peaked, he said.
Rapid inflation in the cost of doing business, from renting drilling rigs to the cost of steel pipes, has been a growing impediment to companies racing to bring new oil and gas resources to market. It has become increasingly common for major projects to blow out their budgets and come online months or years late.
"At the moment, costs are at an all-time high," said Candida Scott, senior director of cost and technology at U.S.-based consultancy Cambridge Energy Research Associates, or CERA. But she said there are signs that they could begin to fall again. The price of many of the basic raw materials used in energy projects - steel or bitumen, for example - is falling and the availability of vital equipment such as drilling rigs or floating oil-production vessels has grown, she said.
But the shortage of human resources is still a problem. "Even with a drop in activity we are still as an industry absolutely stretched to breaking point. I don't envisage personnel costs coming down," Scott said.
The Legacy of the '90s
"Where there is a real skills shortage is in the senior technical appointments, engineering, geologists, geophysicists, reservoir engineers, petroleum engineers, drillers," said Bob Greenwood, head of the U.K. oil and gas practice at recruitment firm Odgers, Ray and Berndtson.
"The industry is lean to the point of anorexic," said Jim Babb, international director of energy at executive search company Norman Broadbent. "The day of reckoning is already coming. There are projects that cannot physically start because they don't have the senior management."
This shortage has its roots in the boom-and-bust cycle of the oil industry. "The legacy of the low price of oil in the late '80s and '90s resulted in oil and gas companies shedding staff. That legacy has carried through to a situation you have now where you have an aging workforce and the pipeline of technical leadership talent is not there any longer," said Andy Baggus, head of energy and resources at the U.K. arm of recruiters Boyden.
It isn't just Western firms that are suffering. "The Russian industry has a serious challenge," said Scott Eversman, a partner at Heidrick and Struggles who headhunts for the Russian energy sector, the world's second-largest source of oil and biggest source of gas.
The demise of the Soviet Union reduced the esteem with which engineering as a career was regarded and students began to opt for business instead of technical degrees, Eversman said. "There just aren't enough good, young, bright people coming up through the system," he said.
State-owned oil companies of the Middle East aren't immune to the problem either. They tend to develop their own staff in house, but are dependent on Western oil-services companies for many vital technical aspects of their own projects.
This global imbalance between demand for talent and what's available in the market "is probably the single biggest potential limiting factor for oil and gas companies," Baggus said.
The Skills Gap
But all those things are in short supply. In 2006, one in 10 job vacancies in the U.K. oil and gas sector went unfilled, said Inglis. Headhunters working for Western oil and gas companies say their job has become much more challenging.
"We've got to talk to an awful lot more people to generate our shortlist of four or five candidates. We're typically talking to upwards of 250 people per search now, whereas four or five years ago we would have been talking to perhaps 100 people," said Odgers, Ray and Berndtson's Greenwood. Senior technical staff "are getting half a dozen calls a week from headhunting firms. It's very much a candidates marketplace," he said.
"You do not find as readily the caliber and quality of people," said Babb. For example, when a company operating in Africa came to him looking for a senior manager, there were only six people who could do the job globally and it took 15 months to put one of them in the position, Babb said.
"The issue is leading to project delays or deferral," said Inglis. Salary and benefit costs have also risen rapidly.
But the problem may get worse before it gets better because almost half the industry's aging workforce is within five to eight years of retirement.
"We have seen a consistent rise in applications for the last eight years," said David Macdonald, head of the school of geosciences at the University of Aberdeen, Europe's biggest oil and gas hub. "Knowledge has got about that if you get a decent degree you will get a job, and salaries have gone up."
Many companies also have programs in place to talent-spot students while they are still undergraduates, attract them into the industry and keep them interested once they are on the job, Macdonald said.
"We see an increase in the 20- to 34-year-old bracket - reflecting more intensive recruiting in the last 10 years," but that still leaves a large gap in the 35- to 49-year-old age bracket that needs to be filled, said Inglis.
There is no one way to fill this hole in the industry's demographics.
"Some companies would look at other resources sectors," said Mat Green, head of energy at executive search firm Russell Reynolds. Someone with experience in mining may be suitable for a position in onshore oil and gas, he said, but the scale and complexity of big oil and gas projects, particularly offshore, means that in some cases there is no substitute for direct experience. "You can't take a $50 million project guy and put him in charge of a $750 million project," Green said.
One way BP aims to solve the problem is by diversifying its workforce, bringing in more people from developing countries through ventures such as its Caspian Technical Training Center in Azerbaijan. But the industry is already global and recruiters say there are few untapped pools of skilled workers.
There is broad agreement that one of the best solutions to the problem is for companies to delay the retirement of their most experienced workers with tempting pay packages and flexible hours. BP has a program in place to do just this and its success will be crucial because the mentoring and sharing of experience from senior colleagues is such an important part of on-the-job training for new recruits, said Macdonald of Aberdeen University.
"These people are the lifeblood of their industry," said Babb. "In 15 years' time there will be more sliver hair floating around companies than you can shake a stick at."
Copyright (c) 2008 Dow Jones & Company, Inc.
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