Oil and gas companies must find qualified personnel to fill the shoes of an older workforce nearing retirement age
Kate Birenbaum, Seyfarth Shaw LLP, Houston
This will be a difficult year in the oil and gas industry, with the tumbling price of crude and the belief, voiced in some corners, that the days of $100 per barrel oil may be behind us. This is also the year when nearly 50% of the world's oil and gas workers become eligible to retire.
An estimated 71% of the energy workforce is 50 years old or older, and the American Petroleum Institute says that as many as 50% of skilled energy workers may retire in the next five to seven years. This event is commonly referred to as the "Great Crew Change."
This brings up some questions that beg to be answered:
How do the volatile price of oil and the rising number of retirements converge for energy companies?
How can companies in the energy space continue to prepare for the Great Crew Change while hunkering down to survive - and even thrive - in a down market?
Significant talent gaps - 1980s to 2000s
The Great Crew Change itself is the confluence of two distinct events - the looming retirement of the huge cohort of Baby Boomers (those born between 1946 and 1964), confounded by the impact of the downturn in the energy market beginning in the 1980s. Between 1982 and 2000, nearly half a million jobs were shed from the energy industry.
During that downturn, roughly 25% of engineers and geologists left the energy market. Moreover, between 1984 and 1999, few college students opted to go into energy-related fields. As a result of the dearth of employees entering the energy field between 1984 and 1999, mid-career professionals are now in short supply, and the industry finds itself with a large group of workers heading towards retirement and another group of inexperienced Millennials unready to replace them.
2000s to the present
Using data collected by UCLA, one study found that from 1997 through 2005 the proportion of college freshmen planning to enroll in STEM fields declined, hitting a low in 2005 of 20.7%. Thereafter the percentage of freshmen planning to major in STEM increased rose to 28.2% by 2011, as the 2008 recession prompted many to focus on the job potential of various fields of study.
It is obvious why schools have been seeing an uptick in students seeking STEM degrees. In the US, drilling and petroleum engineering jobs are ranked as the first- and second-highest paying jobs for recent graduates in STEM disciplines, and of the top 10 best-paying jobs for recent graduates, eight are in engineering disciplines.
Having said that, there are caveats to the numbers of students identifying an interest in STEM majors. Studies reflect that, of students who initially identify a STEM major, nearly half fail to graduate with such a degree. Moreover, in July 2014 the US Census Bureau reported that 74% of those who received a bachelor's degree in STEM majors are not employed in STEM occupations.
Impact on industry is profound
The potential long-term impact of the Great Crew Change is considerable and profound. In 2013 Schlumberger predicted that the oil and gas industry would have a shortage of about 15,000 experienced petroleum engineers and geoscientists by 2016. To combat the effect of the Great Crew Change, the oilfield services giant forecast that the industry would need to hire 10,000 new petrochemical professionals every year through 2020 to offset retirements and meet the need for expansion.
More recently, in February 2015, Pearson Partners International released the results of a survey of more than 200 senior executives across the oil and gas energy spectrum. The survey revealed that these executives identified a shortage of talent as one of their biggest challenges over the next five years. The Great Crew Change is identified as the number one talent-related challenge, followed by a lack of technical talent, such as engineers and geoscientists, and a lack of leadership talent.
Price volatility resulting in layoffs
Against the backdrop of the Great Crew Change, tumbling oil prices are having an impact on the oil and gas workforce. Bloomberg reports that there have been more than 100,000 layoffs worldwide in the industry since prices began to fall in the summer of 2014. Indeed, we have all seen the headlines in recent months reflecting the impact of tumbling oil prices, with oilfield service companies announcing layoffs of thousands in recent weeks, and large independent oil companies issuing hiring freezes and closing branch offices. If the price of oil remains low, companies will likely take stronger measures.
Pearson Partners International's survey revealed that 59% of those surveyed expect their segments to perform moderately or significantly worse in 2015 than in 2014, although in the longer term 76% expect their industry segments to perform significantly or moderately better over the next five years.
Although the near-term outlook is more gloomy, 22% of those surveyed still expect their headcounts to grow in 2015. Those who expected to see decreases in headcount were oilfield equipment and services suppliers, drilling contractors, and EPC companies, whereas the major, independent, and national oil and gas companies were more likely to take a balanced view of headcount in 2015.
One consulting group, Metroworth Consulting, suggested that industry roles that will still be going strong in terms of hiring in 2015 include downstream operations, Gulf Coast LNG occupations, polyethylene plant staff, ethylene plant staff, project engineers across multiple areas of expertise and sub-segments (non-exploration roles), and construction management specialists.
Metroworth also sees growth related to shale gas and tight oil development and production. Finally, they are predicting growth in East Africa, specifically Tanzania, Mozambique, and Kenya, due to offshore gas discoveries.
In the short term, the current down market may provide some hiring opportunities. Hiring managers can focus on this new availability of "opportunity hires," noting that skilled people may now be available at a more reasonable cost. Previously, when oil had been $100 a barrel, there had been increases in salary expectations to unsustainable levels. Employers offered lucrative bonuses in an effort to retain top talent in a highly competitive market and poached employees from competitors with promises of high salaries and large bonuses.
However, in the current industry downturn, employers have increased purchasing power when considering hires. One noteworthy exception will be companies offering retention bonuses in the face of increased merger and acquisition activity. Another potential impact is that companies can be more selective in hiring during this period. For example, a STEM graduate with a C average from a second-tier university may have been a hot commodity when oil was $100 a barrel and such employees were in demand. Now that oil prices have come down, job applicants will find the market for talent has become more competitive.
Companies should not lose sight of the issues related to the Great Crew Change, however, and the ways in which this round of layoffs may compound existing and future talent gaps. For example, skilled workers who are laid off in an energy downturn may seek work in other industries that are also experiencing a less-dire version of the Great Crew Change. The construction industry, for instance, has struggled since 2009 to find craft workers to fill positions, while those workers flocked to the energy industry with promises of larger paychecks and lucrative bonuses. Now the situation may reverse, as many energy workers move into the construction industry during the downturn and thereafter refuse to rejoin the energy workforce.
Energy companies should make an effort to retain their experienced workforce during this downturn. This issue can be exacerbated by a reduction in workforce leading to increased stress on remaining workers who also may leave, particularly more experienced employees who may opt to retire.
A number of energy personnel consultants have opined that employers should remain cognizant of the stress placed on the industry by the dearth of employees in the mid-career cohort. Given the existing knowledge and experience gap caused by layoffs and hiring freezes in the last downturn, employers should make a greater effort to retain workers to avoid such an outcome when the market returns.
It is important for employers not to lose sight of the importance of long-term planning. Put simply, the current market downturn will have virtually no impact on the Great Crew Change, which is coming whether oil is booming at $100 a barrel or moving along at $45 a barrel. Indeed, recent Global Oil & Gas Salary Guide survey data revealed some of the conflicting challenges facing employers in this economy: companies need to complete current projects, reduce costs to reflect the new economic realities, while still working hard to retain talent as part of their succession plans.
This long-term planning involves key elements that many energy employers are already focusing on as part of their workforce strategy. First, employers are focusing on ways to retain their experienced workforce. While these employees reach retirement age in increasing numbers, employers are seeking creative ways to retain their skill sets by entering into consultative arrangements or offering more flexibility to allow part-time work.
At this time, employers also need to focus on capturing and retaining the institutional knowledge that resides in the heads of these experienced engineers and geophysicists. Energy companies must develop a plan for the generational hand-off of knowledge. An effective plan would include the development of processes for (1) identifying key roles and processes for inclusion in the plan; (2) capturing institutional knowledge for those roles and processes; and (3) developing systems for transmitting that knowledge to identified individuals. One way to reinforce the need for this information transmission would be for employers to link knowledge continuity to competency programs and career development.
Employers should also be exploring ways to backfill the roles of mid-level engineers, supervisors, and other roles that are scarcely populated because of the downturn that began in the 1980s. One way employers are trying to close this gap is by focusing on candidates outside of the energy industry. For example, employers are considering potential hires with a military background who have easily-transferrable skill sets and often have prior education or experience in energy-related fields.
Some employers are looking in other industries for candidates willing to make a shift into the energy industry - engineers with construction backgrounds or health and safety employees from other industries. In the near term, employers are also focusing on filling roles with people with a greater breadth of skills and experience, as roles may consolidate, and also increasing use of contract workers to create a more flexible staffing environment.
Yet another option is to cast a wider net and look globally for candidates, particularly when other countries may have higher numbers of individuals receiving STEM education and training. For example, while 13% of college degrees awarded in the US are in science and engineering, in China those degrees comprise 41% of university degrees awarded.
Finally, with regard to the employee pipeline, employers are increasingly focused on the need to channel more students into STEM degrees and energy jobs. This focus often involves partnering with local college and universities and developing programs to interest high school students in pursuing a STEM-focused education, often with a focus on females and minorities. Some suggest that, in order to draw the next generation of scientists to STEM education, an interest in science must be encouraged even earlier than college or high school, by focusing on children as young as elementary-school age.
Companies are also focusing hiring strategies on the different interests of Millennials. Studies suggest that Millennials have very different ideas about the workplace. These strategies address both hiring and retention. For example, Millennials are extremely active on social media, unlike prior generations, so a recruitment strategy should include a social media component. Nearly half of all Millennials are looking for their next job on LinkedIn. Consequently, there are more than 5,000 oil and gas LinkedIn groups, with about 500 focusing specifically on jobs.
With regard to retention, Millennials seek positions based on the experience that they provide, and may focus more on perquisites aside from a high salary. They look for companies that seek to maintain a work-life balance, and they do not have the same attitude about employment longevity as their predecessors; they expect to work for many companies during their work life. Companies seeking to hire Millennials should be aware of these preferences because the type of workplace that appealed to Baby Boomers or Generation Xers hold little appeal for Millennials.
This year will require energy companies to make many strategic decisions as they navigate the downturn. These strategies must take into consideration the coming of the Great Crew Change. Part of the reason why the energy industry is experiencing more significant workforce challenges that other industries is because the downturn in the 1980s led to hiring and other strategic decisions that continue to impact the energy industry to this day.
Going forward, employers should make strategic decisions with an eye towards long-term staffing needs so that they do not find themselves facing another Great Crew Change 20 or 30 years from this downturn.
About the authors
Kate Birenbaum ([email protected]) is senior counsel in the Labor and Employment practice of law firm Seyfarth Shaw LLP in Houston. She advises clients in the energy sector on a variety of employment law matters and represents them in administrative matters as well as litigation.