Consultant sees surplus of some oil, gas workers in 5 years

Sam Fletcher
Senior Writer

HOUSTON, Mar. 6 -- Despite current emphasis on "talent gaps" within the petroleum industry due to the loss of experienced older workers, global labor trends indicate an adequate—or even excess—supply of entry-level workers over the next 5 years, said Bob Orr, Houston-based director of oil and gas consulting practice for Mercer Management Consulting Inc.

Energy companies participating in a recent survey by MMC said they anticipate shortages across all critical occupational groups. However, according to other sources uncovered by MMC, the entry rate of new workers in petroleum engineering and geoscientist occupations will just keep pace with retirement losses and increased demand for employees in those fields. On a global scale however, a large number of young workers will be entering the work force, creating a surplus of applicants with "at least entry-level skills and knowledge" for other jobs in the oil and gas industry.

"If you break it down by countries and geography, we see the sub-Sahara Africa region as having the greatest number of worker shortages. There clearly are some in the US, Canada, and the former Soviet Union, too. But we see a surplus of skilled workers in Asia and the Middle East," Orr said. "In some positions such as upstream technicians, if the current productivity levels continue to progress the way they are, we could see an excess supply of technicians within 5-7 years." There also "could be spot shortages in places, based on geographic factors," he said.

Enrollments in geological and petroleum engineering schools have been increasing "for the last year or so, even in US schools," Orr said. "Many schools have diligent programs to reposition petroleum engineering as an attractive career path. Whether they are at the level they need to be, whether all of those candidates matriculate and actually go into the oil and gas fields, remains to be seen."

Changing labor regulations in Europe will spark an increase in retirements over the next 5-10 years. Among firms surveyed by MMC, the service companies project the highest percentage of retirement losses, with 20% of that workforce due to retire over the next 10 years. "The ability to acquire significant wealth in recent years is leading many employees to take early retirement," the study reported.

"The problem is, a lot of entry-level talent is coming into the marketplace and a lot of very experienced talent is exiting the marketplace. So what we really have is an experience gap," Orr said. "It's really not an issue of numbers for numbers' sake. It's an issue of the quality of experience, which will continue to drive competition for experienced workers certainly over the next 5 years."

That means companies competing for those workers "need to be quite serious about their talent management strategies for both the retention of experienced workers and to make sure they're bringing in the best new entries into the system that they can—coaching them, training them, and bringing them along as fast as they can with the transfer of knowledge," said Orr. The most successful companies will be those with an integrated set of talent management strategies.

International workforce
Companies now gravitate towards internal solutions to regional talent shortages, but that approach may not be sustainable over the long term, Orr said. In the future, the petroleum industry's work force will be even more international. "There are a couple of reasons for that," Orr reported. "We're seeing more trained engineers, project managers, and other experts coming out of schools in countries outside the US, especially in Asia and in some cases the Middle East. Also, there is growing demand for them over there, and many companies try to build national work forces in countries they're working. While in the past there have been a lot of [western] expatriates, as we interviewed companies and talked about their strategies, what we heard more was very definitive plans and strategies to build those national workforces." US and European companies are recruiting experienced professionals from other parts of the world "because that is good for them in the work that they're doing in those countries but also because that's where some of the newer talent is coming from," he said.

"Good project mangers are the new rock stars of the industry," said David Hobbs, vice-president and managing director of global research at Cambridge Energy Research Associates, during the group's annual energy conference in Houston in early February.

At that same meeting, Farouk Al Zanki, chairman and managing director, Kuwait Oil Co. said his company plans to increase its oil production to 4 million b/d by 2020, which means finding new ways to develop relationships with international oil companies. He also emphasized the need for a highly skilled workforce; KOC expects to have 8,000 employees by 2015, up from 5,000 today.

MMC did an external labor market analysis of the current population of workers on a global basis to understand the trends for people entering engineering and other programs. The purpose is "to understand what the trends will be over time" compared with "companies' perceptions of where their own labor forces are going," Orr said

The study found that employers need to be looking to provide more challenge to younger employees. Oil and gas companies are able to recruit new employees, although "they have to pay them a surfeit of money these days, but the real challenge is in holding onto experienced workers," said Orr. "So once folks have been there some years and salary levels tend to plateau, those workers are looking for more challenges in their careers. They want more responsibility. They want to move up to next level. And often when they are leaving one company for another, they're not leaving only for more money but for what they think is going to be a better opportunity."

To cope with such problems, companies are developing more structured career paths, especially for skilled workers or those approaching managerial levels. Under such systems, Orr said, "Workers can understand where they may go over a 15-year period, what kind of moves might they actually make over that time, so they continue to be excited and continue to see that company as a good place to stay."

He said, "It may sound intuitive, but I think that in the past only a few companies have done a really good job at that, with maybe the service companies doing a better job than some of the big oil companies."

When it comes to retaining experienced workers, Orr said, "I think there's a common perception that it is all about money. I think the reality is you have to be competitive [in pay], but what you also have to provide is the right culture, the right opportunity for growth over time, and the flexibility that allows for career advancement."

He said, "Money not the driving interest, at least in the US. Now in Canada and its [developing] oil sands areas, I think that's a different story. I think people are putting themselves up for the highest price" to compensate for working in remote frontier areas with extreme climates. However, Orr said, "The story heard in the interviews we did was one of people switching [jobs] primarily to get more responsibility over time and shifting from places where their career paths might have been unclear.

Job remuneration is not going to be only criteria, and new employees will look for a better lifestyle balance—"having the right geographic situation so they are not being sent overseas to inhospitable places for too long and maybe doing more of their work from Houston offices," even though the projects they are working may be in distant places.

Management strategies
Orr advocates three basic "buckets" of management strategies: The first is sourcing and recruiting of employees; the second, the development and management of workers; and the third, rewarding and retaining the firm's best producers.

The wrong strategy would be to focus "on one area as a silver bullet" to resolve the experience gap, Orr said. For instance, companies addressing retirement issues often put their emphasis on retaining older workers rather than rehiring them after retirement. The right approach, said Orr, is to determine first where a firm will have the greatest shortages and to refine and enhance its integrated strategies across all three key levels.

The first step is "getting the right recruits through the door," he said. "Am I going to the right schools to recruit? Do I have the right recruitment policy? Is it better than my competition's? What will convince the best people to come with me, other than money?"

Then, Orr said, "Once I have them in door, do I have the best training program, the best coaching and mentoring, the best career path opportunities for them? How do I put together the best performance management strategies in terms of supervision, in terms of leadership development, in terms of performance assessment, so they know where they stand, and we know where they stand, and we can manage those the right way and be very serious about it?"

On the "reward and retention side, compensation and incentives have got to be competitive, for sure," said Orr. "But also on the retention side, what other programs do I have? How am I managing and adapting my [corporate] culture to help with retention? How do I build flexibility into my system to do that? And what other talent management tools and strategies am I going to use to keep folks there? It's important to manage the full life-cycle of the workforce at each level across each position, as well as geography in a coordinated and rigorous way to insure that I'm going to have the right kind of experience when and where I need it. The solution is not to throw more money at people but maybe to put some investment dollars into talent management strategies," he said.

Many—"but not all"—of the leading companies now recognize this is no longer a human resources issue only, he said. "It is a senior management issue, an operational issue, and the general management strategies need to be linked across all the operational processes in a company," Orr said. "It makes sense, but when you get inside some of these companies, they're not managed that way." Too often recruitment and training are left to the human resources department.

"People are going to be more attracted to companies providing the best representation of what their future could look like—those companies that are really actively involved in recruiting and not just making spot appearances," Orr said.

An integrated application of all the strategies in advancing workers to their next levels "allows companies to do a better job of recruiting people, but also in keeping the people they have, keeping them happy and motivated relative to their competition," he said. That then translates into development of a corporate culture "that will be self-perpetuating, in people wanting to stay, wanting to excel, and wanting to push the company forward. Some companies are beginning to do this; others are just now starting to recognize this and to put some programs and priorities into place."

A number of companies are establishing training centers in countries where they want to build national workforces, establishing coordinated programs with local universities, and integrating that national workforce into the international company's broader workforce. What that may mean for those companies and their employees "is something that companies are just now starting to consider in their career paths. Do those national workforces just stay there [in their native countries]? Do they get integrated into the company over time? Do they become expatriates in other places?" Orr asked.

"I think the industry has a large opportunity to have a culture shift to allow it to be more successful on the people front. Industry has lot of smart people who recognize this as well but who need to focus their efforts and attention," he said. "There are a lot of dollars at stake, so it benefits companies to make sure their dollars are spent wisely by testing some of these things before committing those dollars to it."

It is not a simple matter of putting equal money into each "bucket," he said. "It's about setting priorities and dealing with them in order." Most companies have strength in some areas and should invest more in the areas where they are weak. Some employers have the perception "that it is all about the about the aging workforce," said Orr. Loss of workers through retirement is certainly an issue in the US. "But it is not a global issue," he said. "While we may expect to see larger experience gaps in the US, in places such as Asia that is not the case."

More mergers and acquisitions are likely over the next few years. "But I think that has settled some," said Orr. "Related to that, one the areas where companies probably are not doing as good today is effective integration of workforce planning with operation plans."
He said, "A number of companies know what they want to do within the next year and have plans for that. But if you ask them where they are going to be 3-5 years from now in terms of the fields they are going to be operating in, they may have some ideas but they probably have not yet linked it back to the resources they need to do it, including the people."

Orr said, "Acquiring the people resources as well as rigs and other infrastructure becomes a longer planning horizon in terms of what companies need to do. That means they need better development of strategic planning capabilities and linking those to resource requirements and securing those requirements much earlier."

Performance simulation
Performance simulation "is one way to capture the loss of experience and transfer it to new employees," said Parrish K. Potts, a partner in Accenture, at the Cambridge Energy Research Associates annual energy conference in Houston in early February.

Performance simulation is similar to a flight simulator applied to business situations, enabling users to gain "job experience" in the same way that a flight simulator allows a pilot to gain "flight experience" on the ground that will improve his performance at the controls of a real airplane. Accenture's website quotes one satisfied client as saying, "Twenty-four hours on a performance simulator is equal to 4 years of job experience." Learners are challenged to achieve specific, real-world business objectives and master the fundamentals of general business skills or those unique to their business, said company officials.

It can teach sales staff the best practice behaviors for traditional and nontraditional interactions with customers that result in increased sales and sales conversion rates. It generally can improve the efficiency and effectiveness of customer service representatives, resulting in increased sales, reduced cost, and greater customer satisfaction. The company provides several ready-to-use simulations available in supply chain management, customer relationship management, leadership development, and other general business operations.

Contact Sam Fletcher at samf@ogjonline.com.

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