January 7, 2008

Tackling the Oil and Gas Industry Skills Gap

Booz & Company study unearths methods of avoiding a crisis ‎in the industry.‎

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. ‎


Regional Impacts

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.‎

A full version of the study is available from Booz & Company on request.‎