Oil and gas industry continues to grapple with technical personnel shortage

Sept. 24, 2001
The shortage of skilled technical personnel again looms heavily over the oil and gas industry.

The shortage of skilled technical personnel again looms heavily over the oil and gas industry.

As of late, many perceive industry's labor dilemma as having reached a flashpoint of sorts. Although the situation would not appear to lend itself too easily to any immediate or obvious solutions, those grappling with the crisis appear cautiously optimistic about solving it-or, at least, doing their level best to adapt to it.

Click here to enlarge image

There is no denying the shrinkage of industry's work force. In the US, the number of employees working in oil and gas extraction during 1991-2000 has diminished by more than 80,000, according to the US Bureau of Labor Statistics (Fig. 1).

Meanwhile, advancing technology has emerged as a short-term "band aid" to improve the efficiency and productivity of workers within oil and gas companies. Many industry sources contacted by OGJ, however, cast doubts over just how long these newly gained efficiencies will last without industry addressing the real problem: its shortage of skilled technical workers owing to a "generation gap" spawned by the boom-and-bust cycles of recent decades.

Standing against any proposed plans that would otherwise disarm the ever-ticking demographic time bomb are myriad obstacles, including:

  • An increasingly global marketplace that makes competing for, as well as retaining, technically skilled workers more challenging for oil and gas companies' human resources departments.
  • A continuing upward creep in the average age of industry's talent, with a sizable percentage of experienced technical personnel expected to reach retirement age within the next 10-15 years.
  • Industry's poor reputation-one marred by images of environmentally damaging oil spills, volatile energy prices, and sweeping layoffs during down cycles-which continues to thwart oil and gas companies' efforts to recruit much-needed technical newcomers.
  • The strain being placed on the existing workforce to maintain current-and often even higher-productivity levels with less human capital.

Pivotal point reached

For many, the shrinking of industry's technical workforce has reached a critical point. Others would argue that the situation's inflection point has long since crested.

"The 'pivotal point' has already passed," regarding industry's shortage of technical personnel, said Ron Hinn, benchmarking director, Occidental Permian Ltd., Houston, and a board member of the Society of Petroleum Engineers' Gulf Coast region chapter. "If the exploration and production business were a professional sports team, our 'roster depth' would be slim, and our 'farm system' would be struggling," he added.

Thomas Knudson, president, human resources, for Conoco Inc., Houston, contends industry has experienced one pivotal point after another and that the oil and gas industry is not the only one dealing with a personnel shortage: "I think if you look at what's happening demographically in society today, it's an issue for every industry, not just the oil industry.

"The thing that distinguishes today from other periods in our history," Knudson added, "is not so much just pure demographics but whether or not we can make a really compelling case for our business as a career.

"If you have a really compelling future, and you allow the people that work for you to really have a role in creating that future, you will never lack for talent," Knudson said.

Craig Van Kirk, professor and petroleum engineering department head at the Colorado School of Mines, Golden, Colo., said that, although this latest workforce crunch is not a new problem, it could potentially be one of the biggest in industry's history. "The gap in manpower available right now and the future forecast of the needs within the industry to accomplish what it needs to accomplish has far outstripped today's enrollments in petroleum engineering, geology, and geophysics [disciplines]," Van Kirk observed.

"However, I don't think that the oil business has to stop just because there aren't enough people," he added, "It's a serious problem getting a lot of attention these days, but it's not the first time-not for me."

Competing for workers

Increased competition for skilled workers will be one of the loftier hurdles industry will have to scale in the coming years. Ultimately, the brunt of the responsibility for attracting technical talent will fall square on the shoulders of the individual oil companies, industry sources contend. Presently, however, no unified chorus exists to herald just how industry is to accomplish such a feat.

Competition for technical workers, such as petroleum engineers and geologists, will remain an internal struggle for industry: oil company vs. oil company, sources reckon. Meanwhile, competition for other types of workers-those with financial or information technology backgrounds-will be played out on a worldwide stage, they note.

"Attraction of engineers and geoscientists into the E&P sector is certainly easier than it was just 2 years ago, given the recent malaise surrounding the technology sector," SPE's Hinn noted. "Yet even with fewer options for employment, it appears that graduates outside of the historical oil-producing regions harbor either a poor, or worse yet, nonexistent perception of the industry and its career opportunities."

The down cycle that transpired recently within the information technology sector-and the subsequent layoffs that took place-could bode well for the oil and gas industry's search for workers with IT skills, said Conoco's Knudson. "I think it's healthy that young people see that the 'boom and bust' cycle is not just about the oil business, they are about all businesses," he said. "I think it's actually healthy that there's a lot of competition for talent."

In order to remain competitive, SPE's Hinn said, the oil industry will need to constantly reevaluate and revolutionize itself to remain attractive to new workers. "We need to aggressively sell ourselves and the industry to prospective employees," Hinn said. Despite some of its perceived shortcomings, Hinn noted, the oil and gas business is a revolutionary one due to its "access to-and application of-leading-edge technology and tools, unparalleled potential for career growth and advancement, initial work assignments with significant responsibility and bottom line contribution potential, and exposure to a literal world of opportunity."

In addition, Hinn noted that oil and gas companies must heed the drivers behind workforce retention. These include a strong relationship between supervisor and employee, challenging and enriching work assignments, high availability of employee career advancement and enrichment, compensation and benefits programs that are competitive and flexible, and a clear importance attached to issues regarding work and life balance.

"I don't believe size is a factor in attracting and retaining employees as much as creating a culture that fosters both," Hinn said. Citing as an example Schlumberger Ltd.'s anticipated recruitment of 2,800 students worldwide during 2001, Hinn observed, "With these types of hiring targets, your recruiting message has to be clear, crisp, and consistent.

Human resource professionals at Texaco Inc., meanwhile, are taking a number of approaches in order to compete with other industries for qualified job candidates. These include:

  • A highly competitive total remuneration package, which would include base pay as well as incentive pay opportunities and a comprehensive benefits package. Texaco has found that many companies today are backing away from offering traditional benefits plans. "Sign-on bonuses and new-hire relocation packages are also tools that are available to attract top candidates," human resources officials said.
  • Expanding recruitment efforts beyond traditionally targeted universities, thereby expanding the company's talent pool. Texaco has established an Executive Business Analyst program-a 2-year leadership development program consisting of rotational assignments through which participants gain an understanding of Texaco's business operations-which has enabled the recruitment of experienced MBA students from universities worldwide.
  • Internal training. For example, Texaco says it has been very successful in the recruitment of top engineering students who may have majored in a variety of engineering specialties. In turn, these students are provided training and experience to function as petroleum engineers.
  • The establishment of internal human resources-related processes and programs. These include structured mentoring programs and committees within the human resources department that provide "guidance, support, and appropriate developmental projects for newer employees and development plans for individuals" while increasing "their readiness and competitiveness for senior staff and management positions."
  • Work-life balancing. "Today's new-hire clearly has different expectations than earlier generations," officials said. "While expecting challenging work that allows them to have an immediate impact on the business, they are also looking for companies that provide programs that support the family obligations many employees face." In response to these expectations, Texaco provides "flexible hours, part-time schedules, work-at-home programs, and other programs that help balance employees' work and personal life."

Graying workforce

Click here to enlarge image

Serving as a sample pool of industry's technical workers, the number of petroleum engineers in the US are expected to reach retirement age at a fairly steady rate through 2020, according to data compiled by PetroStrategies Inc., a Plano, Tex.-based consulting, research, and training firm (Fig 2). Concurrently, the addition of graduates to the workforce is expected to grow at a consistent pace as well, but at a rate drastically lower than the rate of retirements. The graph-which represents actual rates and is shown as an age-driven scenario-does not take into consideration any occurrence of a downturn, explained PetroStrategies Pres. Allen Mesch.

Standard turnover was not considered either, although Mesch said that he expects the heaviest incidence of turnover in the coming years to occur on the front end of the workforce, or with industry's newcomers. Potentially, Mesch noted, these younger workers may chose to seek out employment in different industries after just a few years working in the oil and gas industry.

In looking at new graduating petroleum engineers entering the workforce, Mesch doesn't expect to see significant growth in the rate of enrollment in the coming years. In fact, Mesch forecast a relatively high likelihood of another industry downturn, perhaps a year from now, which could have a ripple effect on enrollment rates.

"There are always going to be people who will go into the industry because they find it fascinating, interesting, and an exciting place to work," he said. "But to suggest that we're all of a sudden going to go out and do a great job of getting more people into it is very uncertain."

Click here to enlarge image

And, Mesch pointed out that, in spite of efficiency improvements realized through advancing technology, the dwindling workforce size caused by aging personnel will gradually fall short of the levels required to maintain the projected increase in oil and gas production in the US (Fig. 3).

Essentially, it will be technology that will bridge this gap, Mesch said. At some point, however, 5-10 years from now, the oil and gas industry is going to "take on some big hurt," Mesch suspects.

Image woes

Another tough hurdle for industry to overcome is a problem with its public image, sources say. And while this stigma tends to reach all parts of society around the world, it would appear to do its worst damage at the college level, where professors and oil companies alike are trying to get students interested in pursuing a career in the oil and gas industry.

This negative image, noted CSM's Van Kirk, is perpetuated by the American news media, which he believes tends to sensationalize and even misinform the public when negative news surfaces. "Negative news is so easy to do," Van Kirk said, "especially if it's coming from somebody or some arena that they don't like anyway.

"To get some positive news to pass on, well, that takes a little bit more digging and requires a little faith that it could be true." The news media would better serve the public, Van Kirk said, if it offered a more balanced perspective of information, and "not just half-truths."

Van Kirk said, "The news media and some extremists in the population want to act negatively any time you turn around. And the oil industry has put out hardly any effort whatsoever to counter that misinformation."

Changing the public's perception of industry will not come quickly or easily, Van Kirk admitted. But from the standpoint of the industry's diminishing workforce, oil companies would only need to convince several hundred young individuals each year to chose petroleum engineering as their discipline of choice, Van Kirk said.

This could happen more easily, he added, by oil companies concentrating their efforts on recruiting at the high school level. Van Kirk added that although recruitment efforts are being conducted at the university level, most of it occurs with seniors, which doesn't have much effect on the size of the freshman class, which tends to fluctuate anyway, as a matter of course as the oil industry goes though its cycles, he said.

Conoco's Knudson explained that the company's active summer intern program is an effective way to expose the industry to young minds. And Conoco has seen the program pay off, as a sizable portion of its program candidates, Knudson said, end up working for the company.

"Interning is always an effective way to expose the company to them and them to us so that when we get around to making job offers, we're making more-informed choices," Knudson said.

Gaining efficiencies through IT

For years, industry has made great strides in using technology to help sustain high levels of productivity, therefore requiring less personnel. In this way-at least in the short term-industry has learned to adapt to the growing personnel crunch, sources say.

"Industry will certainly adapt to the situation," Mesch said. "However, the solutions may not be obvious. Adapting will mean that fewer people will be expected to do more work. This will certainly be the short-term solution as evidenced by past events in the oil and gas and other industries.

"The industry will continue to gain operating efficiencies through improvements in communications and analysis systems," Mesch added. "However, preliminary analysis suggests that the industry will not be able to fill this gap through linear improvements in operating efficiencies."

Improved technology can present implications for the long term, Knudson said: "For the most part, the benefits of technology tend to get passed on to the customers fairly quickly, which is why, even though people get outraged with the price of gasoline-if you compare it on an inflation-adjusted basis to what the price of a movie was 30 years ago-you'll see that oil's cheap, very cheap."

"And most of that's been heavily driven by technology, but the vast majority of those efficiencies and improvements have been passed on to the customers, and I think that will continue to happen-it's just the world we live in."

The advancement of technology has enabled oil and gas companies to have immediate access to levels of information that may have taken days or even weeks to accumulate in the past, said Texaco human resources officials.

"This enables today's employee to react more quickly to business situations," the officials said. "The pluses of technology are balanced by the ratcheting up of the need for quick reactions to business issues to remain competitive and the enormous amount of information that is thrust at us daily.

"The advancements in technology have allowed for more-knowledgeable and accurate decisions due to the availability of information, workforce efficiencies, and broader sets of responsibilities for employees in conjunction with these efficiencies," the officials noted.

Independent E&P companies are adapting to the personnel dilemma as well. Gareth Roberts, CEO of Dallas-based Denbury Resources Inc., said that maximizing operations is all about better flow of information.

Denbury's management structure lends itself to a more direct course of action regarding the decision-making process, Roberts stated. Whereas some larger companies have a more rigid, pyramid-management structure-where a supervisor would be required for every group of workers-Denbury is organized so that the flow of information has re placed this hierarchical management structure.

"Now, we only have two layers of management: an investment committee and everybody else," Roberts said. "And yet we're quite in control of every dollar."

Denbury also uses a software application called Production Access, which assists in better monitoring production operations and lifting costs. "I can find out what production on a well was this morning," Roberts noted. "If one of the teams is trying to perform a workover on a well, I can see what the results are. I can see how much money they've spent. That wasn't a possibility before."

Effective adaptation to such technologies, Roberts said, comes from the top of the company. "Most oil and gas managements don't know what can be done. What we're basically doing is creating a virtual oil company," he said.

Roberts added that industry is undeniably facing a shortage of professionals. "What we can do is make the professional more effective, but we won't replace the professional," he noted.

Other methods are currently available to maximize oil and gas companies' operational efficiencies. Schlumberger's LiveQuest-an application service provider (ASP) that enables managers to better manage their E&P software applications as well as their seismic interpretation staff-is just one example.

With industry faced with a shrinking workforce, seismic interpreters are going to have to spend more time actually interpreting data in order for companies to stay competitive, said Leslie Warren, LiveQuest development manager, US operations.

The biggest challenge to doing this, is reassuring companies that it is safe to let their data out beyond their firewalls, added John D'Angelo, LiveQuest manager, business development and consulting, US operations.

The shortage of workers, however, is acting as an incentive for companies to come up with something creative to use workers more efficiently-and as soon as possible, he said.

Oil and gas companies have to replace reserves that are being produced every year, D'Angelo explained. "Right now," he said, "there's several thousand interpreters interpreting prospects and trying to discover reserves. In 10 years, there is going to be 40% of the workforce [conducting this work], meaning that 60% is going to be gone through retirement, or whatever.

"You've still got to replace the same amount of reserves, if not more. That means the productivity of the ones that are left is going to have to get two or threefold better in the next 7 years. Technology is the only chance they have of doing that," D'Angelo explained.