ECONOMICS, TECHNOLOGY RULE PETROLEUM ENGINEERS' FUTURE

A.D. Koen
Senior Editor
News

Economic priorities and technological advances are changing forever the employment picture for petroleum engineers (PEs).

Flat demand and ample supplies are blunting world oil prices, shrinking margins and heightening competition on gas and petroleum product markets.

Oil and gas companies around the world are trying to become more competitive by downsizing, reorganizing, and applying new technology upstream and downstream.

Success, more than ever, is being defined in economic terms. In the prevailing economic tumult, only the best exploration and development projects are attracting capital.

The refocus of upstream spending and rapid downsizing among oil and gas companies is pressing new management and interpersonal responsibilities on PEs, clouding PE career outlooks. Expanded job requirements are forcing PEs to acquire and apply new skills to accomplish new tasks.

Membership roles of the Society of Petroleum Engineers (SPE) show that PE job opportunities are declining in the U.S. but growing in other countries. Other studies have concluded that for the long term more PE jobs inevitably will be lost.

Faced with an uncertain job market, PE educators and others are questioning the adequacy of PE curricula at universities in the U.S. and abroad.

NEED FOR PES UNDERMINED

SPE Pres. elect Roy Koerner says the wave of reorganizations at major companies, especially involving greater emphasis on spending outside the U.S., is the No. 1 trend affecting current job opportunities and future careers of PEs.

As majors sell marginal U.S. production and move operations overseas, PEs in the U.S. are becoming more dependent for work on independent producers and service contractors. It appears likely that more PEs in the U.S. over time will find jobs with independent producers, service companies, or as independent consultants rather than with U.S. integrated majors.

Meantime, better tools resulting from big technological advances are leading upstream companies of all kinds to rethink their businesses. Total quality concepts are creeping into many operating and service company functions, reducing the need for PEs by improving productivity.

With modern computer technology, for example, PEs can obtain and analyze massive volumes of data and present the results in clear tabular form abetted with color graphics. Reports typically can be produced in less time than formerly was needed just to punch cards to enter data into old mainframe computers.

Not too long ago, says Koerner, head of Texaco Inc.'s joint interest operations division in Denver, PEs were charged mainly with maximizing production and ultimate recovery from reservoirs with little regard for the overall effect of each project on an employer's bottom line. Today, PEs are concerned not only with the volumes of oil or gas produced through their efforts but also with economic results such as return on assets, net present value, and payout.

"The prime requirement is for professional PEs who can solve today's problems today in a way that results in a measurable improvement in production, earnings, and cash flow," he said.

CONDITIONS WILL FOLLOW

Many PEs displaced from major companies in the U.S. have been hired by independent operators, including some independents developing leases acquired through major company divestment programs.

"However," Koerner said, "the rate of new opportunities with smaller companies has not kept pace with the loss of jobs from the majors."

Based on changes of SPE membership, Koerner and others estimate PE employment in the U.S. declined about 3% in each of the past 2 years. New members overseas have about maintained SPE's world membership and therefore helped sustain estimated total PE employment.

Despite improving non U.S. job opportunities indicated by shifting SPE membership demographics, Koerner says expectations that PEs can find jobs easily outside the U.S. should be further evaluated.

As PE schools proliferate outside the U.S., countries with invigorated oil and gas activity tend to hire qualified PEs among their own people. Demand for PEs outside the U.S. appears greatest for workers with special training or experience in drilling and workovers.

In addition, if history is a guide, PEs leaving the U.S. would do well to maintain skills needed for domestic projects because conditions in the U.S. eventually will begin turning up in other countries. Koerner says some trends likely will occur a bit faster outside the U.S. in places that haven't had the same types profit oriented business or operating organizations.

"Cross functional teams, for example, could be organized more quickly," he said.

EVOLUTION REFLECTED

Findings of SPE's most recent manpower supply and demand surveys show problems are likely for PEs seeking jobs in the U.S.

The number of PEs employed in the U.S. by operating and sen,ice companies responding to SPE's 1993 surveys is expected to remain flat through 1995. Compared with 1992, U.S. PE employment at yearend 1995, as reported by SPE respondents, is expected to:

Decline 10.5% among operating companies with more than 150 engineers.
Increase more than 20.3% among operators with fewer than 150 engineers.
Increase nearly 70% among service contractors.

SPE's survey, shows PEs make up about 72% of small company engineering staffs, compared with 35% among large companies. PEs are expected to comprise about 90% of small company engineering hires through 1995.

Meanwhile, SPE's survey of PE departments at U.S. colleges and universities found that, compared with 1992-93, the number of PE graduates seeking U.S. employment could be up 31.4% in 1993 94 and 25.7% in 1994-95.

SPE's Journal of Petroleum Technology last January reported that U.S. PE schools since the 1993 survey have reduced their estimates of PE graduates entering the U.S. job market. Now about the same number of PE grads is expected to begin seeking work in 1993 94 as in 1992 93.

But even at that level, about 35% of new PEs in 1992 93 had not found work in their field at graduation, a jump of more than 25% since 1989 90.

NEW HIRE PATTERNS

Joe Vinson, vice president of human resources for the Baker Oil Tools unit of Baker Hughes Inc., Houston, confirms the increase of PE hires by service companies caused by widespread adoption of continuous improvement operating theories and partnering.

Greater sharing of risks and responsibilities at the wellsite is creating more PE jobs at service companies than in the past.

Vinson said, "The market for PEs in the U.S. is still there in some places. But in the past where it was perhaps 60 70% on the production side and 30-40% on service company, it's now a much more equal sharing of responsibility.

"There still will be a lot of opportunities to work for major companies and large independents. But I think that's going to decline, and we'll see more and more opportunities in service companies."

Baker Oil Tools' recruiting on college campuses has become more selective since the late 1970s or early 1980s. Instead of hiring a brace of engineers and keeping only the best ones, the company is hiring geoscientists based on specific needs in specific regions. The unit's recruiting focus is on petroleum engineers with general backgrounds, as well as on mechanical engineers.

"We're tending to return to schools where we've had success in the past, in areas where we have concentrations of operations Texas, Oklahoma, Louisiana, and the Rocky Mountains," Vinson said of Baker Oil Tools' recruiting strategy.

"Ideally, we're looking for petroleum engineers with some intern experience. Not a lot just a couple of summers to get a feel for whether he really wants to be in this business. That's the real value of internships."

LONG TERM OUTLOOK

If the short term outlook for U.S. PE employment is dim, the long term outlook is dire.

Based on projections of SPE membership in the U.S. and future upstream earnings in the U.S. oil and gas industry, John Reis, an assistant professor in the University of Texas Department of Petroleum & Geosystems Engineering, Austin, has concluded employment opportunities for PEs in the U.S. could decline by as much as 25%/year for the rest of the 1990s. If the PE jobs SPE members relationship holds, following that short term adjustment, lost PE jobs in the U.S. could total 1 10%/year through 2050, with a most likely job loss rate of 4%/year.

By comparison, Koerner expects SPE membership by 2000 to be made up of 50% U.S. members and 50% international members, up from about 60 40% in 1993 and 80 20% in 1983.

Reis bases his conclusions about future U.S. PE employment on statistical evidence from 1960 85 indicating that about $3 million/year in upstream oil and gas revenue is needed to sustain each SPE member in the U.S. SPE membership began falling after 1985 when such revenue dropped to less than $3 million/year/member.

Using base, optimistic, and pessimistic cases for future oil and gas production and prices, Reis concludes that revenue earned long term in the U.S. by oil and gas producers will fall considerably because of declining oil and gas reserves.

"There will be a lot of short term noise and fluctuations," Reis said, "but that is a long term trend that is real. The conclusion that petroleum engineering employment will diminish is solid."

Only the rate at which PE jobs will be lost is debatable.

PE EDUCATION

Expected effects of oil and gas industry trends on PE employment last year prompted SPE, the Department of Energy, and the Association of Heads of U.S. Petroleum Engineering Schools to organize the Second Colloquium of Petroleum Engineering Education, a forum for projecting future PE educational needs.

About 75 members of the gas industry and PE academia met in July 1993 to identify key issues facing PE educators in the future. Conference participants described five most probable world scenarios based on trends and changes that could occur through 2010, then predicted industry needs in each scenario, developed an ideal educational model to meet each set of needs, and identified barriers to implementing each model.

The five scenarios picked as most probable were an energy abundant world state, regionalized world state, chaotic world state, continued trends world state, and green world state.

Continuing change was deemed certain under each scenario, with many of the same issues contributing to possible occurrence of all five. In each case:

Fossil fuels will continue to dominate world energy markets with the emphasis on international operations increasing as more oil and gas strikes are made around the world.
Environmental issues will continue to become more important, boosting gas as a world energy source.
Major company restructuring will continue with independents dominating activity in the U.S., universities and independent research organizations playing important roles in oil field research, and service and supply companies taking the lead in transferring and applying new technology.

SKILLS FOR THE FUTURE

Colloquium participants concluded the oil and gas industry will continue to change rapidly and expand throughout the world well into the 21st century.

Many of the skills PEs win need to meet changes are included in today's PE education programs. Among them:

Problem solving skills are developed in basic science courses.
General PE technical and specially skills are studied in advanced PE courses.
Computer literacy is woven into most PE schools' curricula.

Desirable PE attributes not vet integrated into most traditional PE education programs include development of a high level of cultural awareness, adaptability to new situations, and active participation on teams. Colloquium attendees also saw a strong future need for business skills beyond simple accounting functions, leadership skills, and "strong exposure to professional ethics."

Given the continuing shift of spending from U.S. to non U.S. projects through 2010 and the large number of new PE schools founded outside the U.S. in the past 15 years, colloquium participants concluded that many entry level positions for PEs outside the U.S. likely will be filled by qualified candidates native to or educated in host countries.

In the U.S., fewer PE entry level jobs will be available unless the mix of new engineering hires changes. Overall, the number of available PE entry level positions will depend on how many international opportunities are filled by senior engineers with advanced skills or experience in a specific country.

U.S. PE PROGRAMS

An important PE education issue recognized at the colloquium but not discussed in depth was the number of PE programs needed in the U.S. to serve world demand for PEs. SPE outlined these viewpoints regarding that topic:

The issue should be considered and responded to by individual departments.
U.S. PE education is approaching a survival mode with the possibility that as many as half the current programs will survive because enrollments will persist at a low level for several years.
Survival of PE education will focus on graduate level programs, research, and technology transfer.

Because enrollments in U.S. PE programs and the number of students graduating exceed expected demand, UT's Reis says many PE departments are considering diversifying their programs to train students for possible employment outside the petroleum industry.

For example, the University of Texas petroleum engineering department recently changed its name to the Department of Petroleum & Geosystems Engineering. Department administrators are studying options to diversify.

While not citing specific examples, Reis says some PE programs in the U.S. with low enrollments likely will shut down in the next few years.

"In the next 5 15 years," he said, "there will be a major restructuring of petroleum engineering education in the U.S. Only the stronger programs will survive."

CONTINUING TO LEARN

George Boykin, worldwide drilling manager for Amoco Production Co., Houston, says a new PE's learning cycle begins declining soon after he graduates and begins working for an oil and gas company. Blame rests both with the PE's department and his new employer.

"Very quickly," Boykin said, "people start substituting experience for knowledge. That's a trap you don't want to fall into because as soon as you quit learning you slide down the self improvement scale faster and faster.

"The way to really improve your worth as an engineer to a company is to continue to learn. Unfortunately, universities don't prepare people to do that."

Boykin says while engineering students want the challenge of interesting work like problem solving, many colleges and universities instead concentrate on providing only the basics of engineering, mathematics, physics, chemistry, geology, and computer skills.

Too often, he says, PE graduates enter the workforce without a thorough understanding of how to apply engineering principles in the real world, without learning to think, without adequate communication or creative skills, and with no knowledge of team interaction or business economics. As a result, many PEs lack adaptability to respond to continuing change.

Most new PEs continue learning in some ways. But in many companies continuing education is haphazard, so PEs quickly forget some important aspects of learning. Boykin said, "The key to success, particularly if you intend to continue as an engineer, is to continue to learn."

PREPARING FOR THE FUTURE

To do a better job of preparing PE students to work in the oil and gas industry of the future, Boykin says, universities must continue to impart technical skills but in balance with better communication skills and abilities to think independently and continue learning.

"More and more," he said, "to get the quality of people we need to understand environmental concerns, contracts, and all the other things an oil and gas company does, we need quality engineers. Where else can we get that kind of person except from a university graduating petroleum engineering students?"

For their part, employers can use PEs more effectively by encouraging and rewarding innovation, establishing meaningful paths for real technical advancement, and guiding the learning process through one on one training by a mentor.

In an individualized, optimized, training program, a PE would advance with the mentor's guidance through guided reading to directed problem solving and analyses and through arranged hands on experience in project planning and implementation until finally achieving mentor status in his own right. Optimized group training under guidance of an experienced coach would be designed to induce team learning.

Amoco cut the time needed to train a competent drilling engineer to 3 5 years from more than a decade by allowing time away from the wellsite to study procedures and results.

"It's very important for a company to become a learning organization," he said.

COMPETENT GENERALISTS

SPE's Koerner believes evidence about future oil and gas operations indicates the outlook is brightest in the U.S. and overseas for PEs with a wide breadth of technical knowledge and experience PEs described as "competent generalists" by current SPE Pres. Al Breitenbach, chief executive officer of Scientific Software Intercomp Inc., Denver.

"These are PEs who can provide the solutions to a wide range of problems from drilling, workover, regulatory compliance and permitting, reservoir engineering, facilities construction, and other specialties," Koerner said. "PEs working as members of cross-functional teams with other geoscientists, land people, and financial planning people need a working knowledge of other such skills. Again, the skill to change will have a high priority among prospective employers."

Based on results of scenario planning, PE education colloquium participants summed up the employment outlook for PEs this way: "Many future PE graduates must be prepared to make their own ways, more like other professionals such as architects and veterinarians, without the luxury of major company employment to provide in house and continuing education, a variety of career paths, and in company nurturing."

In the end, Koerner says, employers, educators, and PEs must align PE job opportunities and career outlooks with economic realities.

"PE employers should carefully think through their business objectives and hire people based on the idea that lifelong employment is desirable, if not probable," he said. "That means closely aligning company objectives and culture with skills, intelligence, values, and potential of the individual under consideration."

Once selected for employment, he says, the PE must align his career objectives with company objectives, all the while pursuing new knowledge and continuing to provide skills the organization needs and values.

"In addition," Koerner said, "the professional must build financial and psychological reserves for the inevitable day of job change."