Shifting Sands - The future of the oil industry

The generation gap... a huge issue

The cyclicality of the oil and gas sector over the past two decades has led to waves of retrenchment and job shedding.

This historical cyclicality has exacerbated a skills shortage in the West because the industry has not been able to offer workers a visible, secure career path. The sector is also being hit by wider social trends, with diminishing numbers of young people wanting to pursue careers in engineering and the sciences. In the UK, the percentage of school leavers studying engineering has lately been reported to be around 8% compared with 15% in France and 33% in China but these figures do differ according to the various industrial classifications applied.

In a seminal report in April 2005, US investment analyst John S. Herold said the majors and super-majors had collectively displaced more than 1.1 million employees since 1984. There is a particular shortage of workers in the core 30- to 45-yearold range, because of the recruitment freezes the IOCs implemented over the past two decades.

In the UK, the number of people employed directly and indirectly by upstream oil and gas companies shrank from around 360,000 in 1997 to 270,000 by 2001, though there are signs of a partial recovery.

In Norway, the figure is around 80,000 with a significant skills crisis reported as a major theme at the 2006 Offshore Northern Seas conference. In the US, the Independent Petroleum Association of America (IPAA) records a massive drop in upstream employment from more than 700,000 in 1992 to just over 250,000 in 2004.

Statistics for the rest of the world are unreliable but, broadly, falling employment and growing skills shortages are widely reported as endemic.

The workforce in Europe and North America is also getting older, with the average age of offshore workers being over 50. “There is quite literally a generation gap in the industry – it is a massive task to recruit tomorrow’s workforce,” says Sword.

A 2005 report by Scotland’s University of Strathclyde said: “The movement of staff to other regions, in addition to the ageing workforce, suggests the likelihood of a significant exodus of accumulated knowledge from the industry in the next three to five years.” It said the industry structure of a small number of “super-majors” is changing with the entry of new, smaller, specialist operators, creating demand for new approaches to training and career progression.

At the heart of the issue is the sheer complexity of the oil business. Forty years ago, drilling for oil was relatively simple, with most sites on land and reserves close to the surface. Now those easy targets have gone, engineers are presented with one of the world’s most technically challenging environments to operate in.

So where are we today? Around the North Sea, especially in the UK, a concerted effort is being made to redress the balance with 500 “Modern Apprenticeships” being created per year, while the subsea sector has begun a drive for 1,000 graduates and workers from other sectors wishing to re-skill. Norway is taking steps too, but in most other parts of the world oil companies and their supply chains are struggling to come to terms with the issue. Even Russia is experiencing difficulties replenishing a once plentiful pool of skilled engineering resource.

Sunrise in the East

3i Sector Partner, Neil Johnson has deep concerns – but he also sees solutions. “Half the senior, technically qualified people within IOCs could reach retirement age within the next ten years. There is going to be a skills gap and we’ve got to figure out how this is going to be filled.”

The solution, according to Johnson, is that companies should look east to China and India, where there is a huge talent pool to tap. In 2004, the UK produced around 24,500 graduate engineers and the US produced 70,000. In comparison, India produced 350,000 and China 600,000.

Western IOCs need to address their needs and tap into this pool. A large number of Chinese and Indian graduates aspire to work for Western companies and energy is considered a prime sector.

“Western engineering and petroleum schools still produce world class graduates, there just aren’t enough of them” says Johnson. “Balancing this we have excellent talent emerging from other geographies. And it’s not just the Indian and Chinese schools – Indonesia and Thailand, for example, are also producing high quality graduates.

“If you look at a company like Schlumberger, it has been at the forefront of recognising the shift in talent from the Western to the Asian schools and has been on an
aggressive and successful hunt for talent out there. This is not just a search for lower cost – Schlumberger realises it can get the quality and flexibility in people in such areas that are lacking in the West.”

Johnson also sees other countries developing specialisations. The former Soviet Union, for example, is a good source of engineering expertise, especially on the geophysical front. Petrobras, the Brazilian state operator, has a strong reputation for engineering, especially subsea, where Johnson says “the deepwater projects have allowed a large number of people to train on the job.”

Dr Peter Goode, CEO of Vetco, agrees: “Look at South America, the Middle East, Asia-Pacific, China and India. There’s a tremendous number of technically trained people being produced by those countries.

“But what is required is a paradigm shift in company thinking. You have to take a risk on a much younger, less experienced workforce. You have to invest in training at a time when your company is very busy and overstretched doing other things – that’s a discipline issue.

“You are cutting off your own future if you think the short-term capacity and growth imperatives are more important than investment in the longer term,which is a lot about people.”

Goode does not see a reawakening to engineering in the UK or US: “You’re not getting Americans signing up to study petroleum at Texas A&M,” he says. “The people who are being pulled in are mostly coming from the developing world and are looking for excellence of training. If you look at the top UK engineering and petroleum schools, a huge proportion of the students are the brightest and best from the rest of the world.”

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