Plugging a black hole

The oil and gas industry is in turmoil. A severe lack of brawn and brains is pushing up costs and delaying projects – a situation magnified by the much- touted baby boomers reaching retirement. The sector is going through huge expansion as our thirst for energy rolls on – inflated by booming economies of the world, especially China and India. Industry resources are at breaking point and the situation is only going to get worse. For instance, the average age of an employee working for a major oil and gas operator or service company is 46 to 49 (according to the Interstate Oil and Gas Compact Commission), while the average retirement age for the industry is 55 years. This means that the next seven to ten years could see more than half the employee base leave the workforce. On top of this, the industry doesn’t have the best of reputations, which means it’s an uphill struggle to persuade young people to choose this career path. But apart from new entries, there is also a scarcity of rig workers, scientists and engineers – the backbone of the industry.

Paul Poley, VP of HR at Devon Energy, sums up the situation during a chat with O&G: “The oil and gas industry is missing half to two-thirds of a generation, because during the 1980s and even part of the 1990s, life in this industry was tough. A lot of the smart technical folks shied away and went into the dotcoms and as a result of that there’s a high demand in this industry for our commodities.” Poley says that this gap is driving a talent war. “There is frankly not enough people to meet the demand, and added to that is the relatively aging workforce in the industry.” For Devon that means trying to hold onto the employees who are looking to retire, and fast-tracking the new staff through training. Poley says good training is critical. “We’ve got to continue to push the envelope on the training and development. So where training used to be somewhat of a choice, now it’s a performance obligation.”

The root cause

Despite the worries, a report into the skills shortage by management consultants Booz Allen Hamilton points out that the talent challenge is nothing new. It says the end of the nineties saw major layoffs, particularly in the US, but the situation has been exacerbated by “oil prices, planned investments and industry demographics that have stretched industry resources globally to breaking point”. Back in 1998 the price of oil slumped, prompting the many companies to reduce or abandon drilling projects and lay off or retire early thousands of workers. The report said the industry is now “paying heavily for this short-sightedness”, after treating human resources like a “tap that can be turned on and off at will”. It found that some companies have attempted to solve the problem by poaching talent from rivals or by relying heavily on “old hands”, but these have been stop-gap measures.

Added to this, the report unearthed a startling fact on recruits. Today there are some 1700 people studying petroleum engineering in US universities compared with over 11,000 in 34 universities in 1993. So, does this tell us that the industry not perceived as being sexy or exciting, or is the thought of being plonked on a windswept offshore platform enough to persuade many young people to re-evaluate their options.

Whatever the source of the industry’s image problem, it’s a dilemma that the oil giants are trying to address. Jeroen van der Veer, Chief Executive of Royal Dutch Shell, has been quoted as saying that there is a serious need to convince young people that a technical career in the industry is both “stimulating and worthwhile”. This urgency was echoed by ExxonMobil CEO Rex Tillerson. He said: “There has never been a time when our industry so needs outstanding talent. Older professionals will need to be replaced in a few years. At the same time, we have see a drop in the number of students taking science-based programs in the United States.”

Once you have people on board, Poley points out how training and development has tuned on its head. “You used to have to promote training but now we have people – both leaders and individual employees – requesting it. For example, we’ve ramped up our college hire and our intern program dramatically over the last couple of years, dedicating resources not only to going out and securing those kind of people, but also developing them in the intern program.”

Devon has around 175 interns this year working towards undergraduate and graduate degrees. The Oklahoma City-based major, ensures that that new recruits are very much hands on – not stuck in a classroom learning theory. “We bring them in while they are training and they do real work. They are not coffee cup chasers – they are contributing meaningfully to the organization.” Devon has established systems for enrolling and tracking training progress and the company has an officer in place who’s sole focus is on developing programs for employees who arrive through the internship scheme.

Pressure to perform

Shareholders, however, don’t want to hear excuses about a lack of graduates, or Baby Boomers reaching retirement; they want results and they want the oil and gas sector to plug this skills gap fast. “We’ve got investors and we’re competing for their dollars,” Poley explains. “There are high expectations. We have an obligation to our shareholders and its getting tougher and tougher as the demands of the oil and gas business get more complex. The easier days of oil and gas are gone, and the technology is changing.”

He adds: “Our industry has a more accelerated path today,” says Poley. “Part is regulatory, part is talent shortage, and part is the technological and leadership changes. What it takes to run this business is becoming a far more compelling, complex, and difficult. Demands are growing in that regard and the talent supply is below the talent demand.”

So what does the Booz Allen Hamilton report suggest next? Well, it says targeted interventions are required and management needs to make time to assess the business impact of the skills shortage and consider the options available to build capacity. It goes on to say: “Companies need to determine how best to recruit, resource, develop and retain their staff, with HR, technical and operations functions owning and working the problem together.” Booz Allen Hamilton argues that the skills shortage is a “top three priority” to ensure an oil and gas company’s health and in some cases its survival. A stark warning indeed for the industry. However, actions speak louder than words and the next five years are when these actions are going to count the most. Watch this space.