Unleashing productivity: The digital oil field advantage

Published: May 23, 2008

The looming labor shortage

Despite record oil prices and increasing demand for crude, the oil and gas industry will be inhibited in reaching its full potential for value creation unless it can solve its dilemmas regarding human capital and resources. Closing the labor and skills gaps represents one of the industry’s major — if not the primary — factors in sustaining growth and maximizing profitability against a tide of rising capital and operating costs.

Industry sources estimate that demand for hydrocarbons will continue to increase to approximately 100 million barrels per day by 2015. If one uses historical spending growth rates, normalized for production growth, to extrapolate future spending levels, these demand projections imply required annual finding and development capital expenditures in excess of US$500 billion by 2015 (Exhibit 1). Because finding and development requires high-cost labor throughout the value chain under the industry’s current model for deploying human capital, the sustained trend of capital expansion will require substantial increases in field operations and engineering expertise.

Oil consumption vs. finding and development capital expenditures

In fact, historical analysis of international oil companies (IOCs) indicates a direct correlation between their finding and development capital expenditure and the number of full-time employees; from this data, we can extrapolate that the industry could ultimately require more than 4 million employees — 500,000 more than it currently has. Given that IOC employment has been decreasing steadily over the past several years, if the expected “unconstrained” demand for labor is considered against this realistic labor decline, the labor gap could eventually reach as high as 1 million by 2015 (Exhibit 2). The critical questions emerging from this analysis include where these skilled employees will come from, what the economic costs of inadequate labor supply will be, and how — if at all — the industry needs to change the way expertise is leveraged.

Employment forecast comparison

In order to meet forecasted skill requirements and reduce the gap between supply and demand, the industry is faced with two options:

  1. Increase manpower through effective supply-side strategies, such as more-rigorous succession planning, retention programs, proactive planning against upcoming vacant positions, focused mentoring, and marketappropriate compensation.
  2. Reduce the need for increased staff by enabling fewer people to do more work and better leverage their expertise, ultimately changing the ways people are deployed to conduct their analytical work. This would entail a combination of increased automation, process redesign, and even increased outsourcing.

The application of digital oil field technologies to enable productivity can be a powerful mechanism to address the demand-side pressures of unique asset portfolios and close the supply gap by accelerating employee productivity.

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Unleashing productivity: The digital oil field advantage