Mikaila Adams
Associate Editor, OGFJ
Today the energy industry is facing one of its greatest challenges - an aging workforce and not enough qualified people to step in and learn their jobs. Although the inability to hire and retain skilled and educated employees afflicts other industries as well, the problem is particularly acute in the oil and gas business, especially among geologists, geophysicists, petroleum engineers, and landmen - professionals who traditionally have formed the backbone of petroleum exploration and production.
The problem is so pervasive that many companies are luring qualified professionals out of retirement as contract employees or part-time help in order to meet business demands. In some cases, these geologists, landmen, and others are earning more today on a part-time basis than they did previously as full-time employees. Farther down the food chain, some drilling companies have resorted to hiring people with criminal records to work as roughnecks and in other roles in order to satisfy the energy cravings of an energy-hungry nation.
The top 25 oil companies in the industry have shed more than one million employees since 1982, and those who managed to hang on are now rapidly approaching retirement age. According to the US Bureau of Labor Statistics, more than 25 percent of the working population will reach retirement age by 2010, resulting in a potential worker shortage of nearly 10 million. By 2030, with the last of the baby boom generation turning 66, an unprecedented 20 percent of the population will be over age 65.
The energy industry is being hit particularity hard by this “graying of the workforce.” One indication is the demographic breakdown of the membership in the Society for Professional Engineers. Despite a slight increase in young members in 2004, the average age remains over 45. The percentage of SPE members under age 40 has dropped from 33 percent in 1997 to roughly 25 percent today.
The attrition of these older professionals is exacerbated by the lack of students to pull from. According to a 1999 National Petroleum Council study entitled “Natural Gas: Meeting the Challenges of the Nation’s Growing Natural Gas Demand,” undergraduate petroleum engineering and geoscience degree programs declined 77 percent and 60 percent, respectively, between 1985 and 1998.
This even holds true at the Colorado School of Mines, a premier institution specializing in the earth sciences. According to the school, general enrollment has declined in geology, geophysics, and petroleum engineering by 26 percent since 1999, and by 44 percent since 1986.
According to Byron Pope, senior research analyst at Pickering Energy Partners Inc., the shortage of engineers is a tough problem to solve over a short-term period.
“Here we are talking about having to hire engineers out of college and bring them up the learning curve over a number of years (not months) before they are in a position to spearhead the types of complex oil and gas field/infrastructure development projects that will be needed to grow worldwide hydrocarbon supply in the coming years,” noted Pope.
Another problem is the skills gap that is particularly strong among workers who drive the companies’ ability to meet strategic goals and objectives. When these types of workers retire or otherwise leave the company, what keeps them from taking all of the knowledge with them?
Reasons for the shortage
“Image” is a huge problem in the oil and gas industry and a key reason young people aren’t lining up for geology and petroleum engineering courses at the country’s colleges and universities. To borrow a phrase from NASA - Houston, we have a PR problem.
The energy industry has a negative connotation among many people who consider themselves “environmentally conscious.” This casts a dark shadow over potential careers in oil and gas for many students.
Another problem is the cyclical nature of the oil and gas industry and the many people who were laid off from their jobs in the peak of their careers. The drastic layoffs during the bust cycles of the 1980s and ‘90s were widely publicized by the media. This left the general public - including those students who may have otherwise entered the field - with a negative perception of an industry that downsizes its workforce every time oil and gas prices collapse.
Even today, during a sharp upturn in all sectors of the energy business, the industry continues to attract mostly marketing and management types who want to strike while the iron is hot and oil is priced at $60 to $70 a barrel. Science professionals are often less focused on financial gain and are disinclined to begin their careers in an industry that is perceived as harmful to the environment and willing to terminate their employment when the going gets rough.
Alex Mills, president of the Texas Alliance of Energy Producers, noted in a June 8 press release that many professionals left the industry following the crashes of 1986, 1994, and 1998. Some returned, but most found work in other sectors of the economy, afraid to return to the volatility of the industry.
The energy industry also faces stiff competition from other industries. Dan Pickering, president of Pickering Energy Partners, told an audience at the Offshore Technology Conference in May that young engineers (particularly in the US) have a plethora of attractive career opportunities available to them outside the energy industry. “It’s not the easiest sell to convince a much-sought-after engineering graduate to go to work for an E&P company when they can go to work for Microsoft designing next-generation software,” said Pickering’s colleague Byron Pope.
Negative consequences
As a consequence of this dearth of qualified professionals, oil and gas companies are in danger of being left critically short of skilled workers. After years of steadily eliminating jobs, the industry may not have the manpower and brainpower to keep up with the world’s growing demand for oil and gas.
The upstream sector is on course to lose two-thirds of its knowledge base within the next few years, said Pickering’s Pope. He explained that the primary consequences of this labor shortage for highly skilled personnel are three-fold:
• Countries/regions with under-utilized/under-paid skilled workers (e.g., Russia, India, Asia-Pac) will assume a leadership role in providing the incremental engineers/geophysicists/etc. that the energy industry so desperately needs.
• Energy companies will have to do whatever it takes (monetary and quality-of-life incentives) to keep their experienced personnel from retiring or jumping ship to another company.
• And, energy projects will likely take longer and be more costly to develop than the industry currently acknowledges. Remember it is superior project management/execution (which comes in large part with experience/maturity) that often dictates whether large-scale energy projects get completed on time and within budget.
Role of energy companies
While most companies have no major plans in place regarding knowledge transfer, some are beginning to take heed. Much of what engineering students really need to know can only be learned once on the job. This is why there is no short-term solution to the shortage of experienced petroleum engineers.
The looming shortage of qualified professionals could have serious consequences in as little as five years, according to industry observers. To overcome this pending disaster, a few companies are taking pro-active steps.
Pope says that some oil and gas firms are looking for a “fast-track process for advancing young talent along in their career paths.” For example, a highly regarded young petroleum engineer at an E&P company might do several relatively short field stints in the company’s major producing basins to get “seasoned” and then be thrust into project leadership responsibilities with older, more experienced engineers providing the requisite guidance. This could be seen as a type of mentoring or shadowing process by which the critical workers pass their knowledge on to those that will hopefully succeed them.
Another program worth noting is Shell’s Gourami Business Challenge. The oil major has conducted the program in Europe for more than 10 years, and this year brought the program to the US. Increased competition in the energy sector prompted Shell to launch this unconventional recruiting strategy in the US in an attempt to woo some of the best and brightest college seniors.
The out-of-the-ordinary recruiting challenge enables Shell executives and hiring managers to meet with students in a setting designed to evaluate their abilities. In the program, students team up to solve complex, real-world challenges from the energy sector while being coached by experienced Shell employees. At the end of the week, the teams presented their strategies, proposals, and billion-dollar budgets at a mock company shareholders’ meeting.
Washington Group International, an international engineering, construction, and management solutions company headquartered in Boise, Idaho, is also making a play for student talent. The company plans to add about 200 oil, gas, and petrochemical professionals to the Houston operation within the next 12 months, with the staffing there expected to grow to more than 500 within the next three years.
The company is seeking both experienced personnel and new graduates from such universities as Texas A&M, the University of Texas, the University of Houston, Rice University, the Colorado School of Mines, and other leading international institutions. New hires will join tenured Washington Group project and technical professionals already at its Houston office. These types of hiring “events” could potentially lure people back to the industry.
Roxar, a technology solutions provider to the upstream oil and gas industry with Norwegian roots, has donated more than $26 million of its IRAP RMSTM reservoir modeling software for academic use at seven leading European universities. The goal of the partnership is to share technology and expertise in the areas of science and technology, documentation, information, and training. The appeal is that it will give students a chance to perfect their reservoir modeling techniques with the same state-of-the-art techniques used in the exploration and production industry.
Role of academia
Universities are known for pairing graduate students and interns with companies, which is beneficial to all involved. Students work on actual industry research and applications, thus providing necessary resources to the industry while the students refine their own skills and knowledge. Many colleges and universities also offer extension programs as a way for professionals to continually upgrade their knowledge and acquire industry-specific skills.
The University of Houston recently devised an ambitious plan that could provide a model for other universities in educating energy professionals. C. T. Bauer, a former chairman of AIM Investments, provided the university with a $40 million grant to expand its energy curricula and teaching staff.
The C. T. Bauer College of Business at the University of Houston has launched the nation’s first executive master of business administration degree in global energy management (GEMBA). The curriculum is designed to provide industry workers with the knowledge and skills necessary to advance their careers in the global energy sector. It differs from traditional MBA programs in that the EMBA allows professionals to obtain their degree in a shorter amount of time while progressing in their career. Students work in teams, encouraging peer learning, and mirroring everyday workplace scenarios.
“At this time, there is no other opportunity for energy executives to acquire these skills, so we are filling a critical niche,” says P. David Shields, professor of accounting and associate dean of graduate and professional programs at UH.
Initiatives are also being implemented at Duke, Stanford, and among industry trade organizations to improve the industry’s appeal to elementary through graduate school students. Some efforts are already paying off. Texas Tech University has expanded its energy commerce program from 12 students in 2003 to 60 in 2005.
In contrast
While many in the industry are concerned about the aging workforce scenario, others like Eric Nielsen, managing director for the global energy practice at Korn/Ferry, an executive research and placement firm, are not. “I’m not worried,” he says. His feeling is that it is a market issue and that it may not be that the industry is unappealing, but that it hasn’t been “front and center” for students in the US. He feels that with recent events including the devastation of Hurricane Katrina, more and more young people are realizing the impact of the energy industry on the country. This view is what will lure the students and that the ups and downs of the industry are just a natural evolution that will take awhile to balance itself out. In the meantime, he says, “The industry may need to look more globally for talent and develop it where assets are based.” This means recruiting from resource-rich places like India, China, and South America where the students see a direct correlation between the industry and its impact.
Conclusion
Progress in bridging the gap in the aging energy workforce is definitely underway, but it will not be a quick fix. Companies and universities must continue to work together. University courses should be redesigned to better reflect actual industry scenarios, and companies must dig deep to implement effective ways to pass invaluable industry knowledge on to younger professionals.
The major challenge, however, might be revamping the tarnished image of the industry itself, so that energy companies can continue to help satisfy the world’s growing demand for oil and gas. OGFJ
