Booz & Company study unearths methods of avoiding a crisis in the industry.
Dubai, UAE, 7 January 2008 – A recent study by Booz & Company into the skills crisis in the Oil and Gas industry has uncovered both causes of the gap and opportunities for improving the talent challenge in the industry. There are four major factors that are contributing to the skills crisis, the study found including the ageing workforce, the need for specialized skills, an increasing workload and escalating costs.
“From the study, we concluded that capability building is a long term approach achievable by pursuing demand side and supply side strategies,” said Dr. Raed Kombargi, Booz & Company. “Oil and gas organizations that proactively manage their capability will enjoy a significant advantage in the industry. There are clear signs that those with a strong response to the capability challenge will have a far higher probability of being able to deliver on the potential of their asset portfolio,” he added.
A summary of the study’s findings follows below.
• Ageing Workforce: The study found that around 50% of professional staff in the industry are between 40 and 50 years old, while barely 15% are junior recruits. This is compounded by the fact that up to half of the current workforce is likely to retire within the next ten years.
“Within the industry, it takes up to 3 years for staff to develop basic industry operating competence and up to 10 years plus for many professional disciplines. Therefore, the gap is easily noticeable,” commented Dr. Kombargi.
• Specialized skills needed: Of the companies that were reviewed during the study, it was found that in 22 leading US oil and gas companies, there are significant shortages in sub-surface engineering as well as in other technical disciplines. In addition, an estimated 40% of industry employers worldwide report difficulties in filling skilled-worker positions.
• Increased workload: The nature of the oil industry has changed, with ‘more difficult oil’ needing to be extracted, requiring customized technology and project management expertise. The geology of reservoirs is also an issue, with more complex formations and physical access more challenging than ever (e.g. deep water), requiring different technology applications.
• Escalating Costs: The costs to organizations for skilled workers are increasing. The salary of a geologist with 10 years experience increased more than 25% between 2003-2006. Salaries for oil drilling rig jobs increased by 60% during the same period. Companies have also been driven to hire retirees as contractors—at twice the price.
The impact of the skills gap is already being felt across organizations around the world and particularly within the GCC and MENA region, where skilled labor is limited. The study found that there are too few experienced people across the industry to support existing operations, or to support the future growth plans and the execution of major projects that are currently in the pipeline.
“What the industry is in fact witnessing is a huge decline in job capability coupled with a lack of proper remuneration for the skilled workforce. The ageing workforce combines with the lack of job-ready skills among undergraduate recruits, where rising salary costs also play a role. We are also seeing increased competition for skilled workers, meaning workers are quick to resign for a position with greater remuneration,” Dr. Kombargi said.
The study additionally highlighted that effective management of ‘People Issues’ is now a strategic business challenge, and that short term gains will not deliver long term solutions to the problem. “Short term fixes are inadequate to cope with the magnitude of the challenge. HR must be allowed to take a more strategic role for closing the skills gap—and in organizations where this happens—people issues are successfully, jointly owned by technical, operational, and HR managers.”
Solutions on the Supply Side
A number of companies have developed solutions on the supply side to deal with the skills shortage. Dr. Kombargi said: “One oil company we looked at created the position of Director of Capabilities within its Technology group.
“The result of this specialized position enabled other staff with strengths and capabilities for specific job roles to be recognized for further development. It reduced the time needed to develop staff to the same high levels of competence expected in the organization,” he said.
Solutions on the Demand Side
The study’s main finding is that demand side strategies must be addressed and companies can and must change the way in which they conduct business in order to effectively close the gap. Four key areas were investigated.
• Simplifying Operations: This can be achieved by using more technology and reducing bureaucracracy. For example, corporate reporting can be reduced in number and frequency to focus on necessary information; this can be aided by the development of automated and more standardized reporting systems; other more technical activities could be streamlined also. “For example, in one company, we found that developing a simplified well prognosis e-format for simple wells allowed reservoir engineers to focus on more complex wells,” said Dr. Kombargi. “Also, procurement and engineering could be much more efficiently implemented by standardizing requirements and simplifying the procurement process.”
• Changing ways of working: Another very effective tool for closing the skills gap is to change ways of working, for example in both engineering reviews and maintenance execution in mature fields. On engineering reviews, companies could use a simplified review process (away from their typical gated process) for minor projects involving like to like changes. For improving maintenance, companies could use proactive maintenance to ensure asset availability and /or selective maintenance on assets being replaced. All of these new ways of thinking / executing work can improve efficiency and result in freeing up the time of resources, thus reducing the demand for people and skills, and as a result closing the gap.
• Implementing new technologies: Smart Wells are one example of a new technology. Smart Wells use remote operation of well-head valves and allow for field data collection and transmission. “Using technology such as a Smart Well puts a greater emphasis on automation - thus a reduction in the need for man power while utilizing more efficient resources for the job,” Dr. Kombargi said. “It also has the feature of real time data monitoring, enabling real time optimization decisions that increase the top line production.”
• Outsourcing: Outsourcing some support transactional activities within an organization can reduce demand by up to 40% in certain areas. In addition to potential savings, the main goal is to reduce the complexity of work and free up the time of resources to work on more value adding strategic activities.
In conclusion, the industry is facing a real challenge that will undoubtedly have an impact on expansion and growth plans, potentially having a ripple effect on oil prices down the road. Tackling the challenges requires commitment from the top and a dual prong approach: focusing on recruiting, resourcing, developing and retaining talent, but more importantly, changing the method of doing business—thus positively reducing the magnitude of demand for talent in the first place.