Talent shortages to continue in the OFS industry

01/07/14

Research conducted by Deloitte[1] in the oilfield service (OFS) industry shows that workforce issues are most commonly cited as having a negative impact on OFS performance.

Most companies surveyed face challenges in recruiting staff in sufficient numbers with appropriate qualifications and experience. This not only applies to engineers but also to accounting and legal professionals with industry specific knowledge.

While most companies agree that attracting young graduates is not a major problem, some would still like more young people to choose engineering careers. Companies across the board are concerned about the shortage of engineers with 15-20 years of experience – engineers aged 35 to 45. This is also demonstrated by the membership demographics of the Society of Petroleum Engineers, an international organisation of managers, engineers and scientists in the upstream sector.

 

The composition of membership changed significantly between 1997 and 2012. Although the proportion of graduates and young engineers is higher than 15 years ago, the ratio of those aged between 35 and 50 has declined by almost half.

This means that once engineers aged 55 to 65 retire a gap will develop for staff with experience in leading large and complex projects. This age group, which has 20-30 years’ experience, also has an important role in training the next generation of engineers.

Increased staff costs are a result of the shortage of skilled staff. However, this is not the only consequence; the lack of trained staff can also make the delivery of some projects difficult or even threaten their viability. In some cases, the lack of a skilled workforce is also viewed as a potential barrier to company expansion. Therefore, companies are trying hard to stop employees from joining a competitor and working on staff retention.

Companies are spending more on recruitment and training. Some are building long-term relationships with universities or technical colleges, while others regularly do university road-shows. Most companies have established training programmes, and some give specific engineering certificates that are well regarded in the industry. More companies also aim to set up apprenticeship programmes to attract graduates.

There is a need for more collaboration between oil and gas operators and education and training establishments. The sector needs incentives to develop and attract candidates to the sector through grants and tax breaks. Simon West, Head of Energy & Natural Resources, NRG[2]

Cautious about technological developments

There is an increasing need for innovative technologies to reduce the cost of developing these resources and increase production from declining fields. However, projects are getting more complex and capital intensive. A number of interviewees believe that these factors make many O&G operators generally reluctant to be the first to adopt an unfamiliar technology, preferring others to take the initial risk. Shareholders also support risk aversion and are against potential short-term cost increases associated with the introduction of new technologies. The O&G industry is slower than other sectors such as pharmaceuticals, aerospace and defence to adopt new technologies.

Low level of investment in R&D

The UKCS is considered particularly slow in this respect, or as one respondent aptly put it: “The UK rushes to be second”. According to Scottish Enterprise [3] data the O&G sector only invests 0.3 per cent of sales in R&D in the UK. This could explain why it takes longer for a technology to go from proof of concept to the market in the UK than the worldwide O&G industry average of 16 years. In contrast, Norway is much quicker to adopt new technologies, with the average time for concepts to enter the market between six to ten years.

The average time from proof of concept to market penetration in the oil and gas industry worldwide has been estimated at 16 years but there is evidence that the UKCS takes significantly longer than this. By contrast Norway is achieving its technology goals, set out in its OG21 framework, and has successfully accelerated development from proof of concept to market penetration in around 8-10 years. Scottish Enterprise, Oil & Gas Strategy 2012-2020

OPEC (Organization of the Petroleum Exporting Countries) member countries continue to invest heavily in exploration and development to maintain and expand supply capacities with more than 110 development projects planned for 2012-2016 – equating to an estimated investment of approximately $270bn.

Global offshore infrastructure spend

Increasing levels of deepwater and ultra-deepwater oil exploration are driving significant spend. The ultra-deep market is gaining considerable momentum as developments in Brazil, West Africa and South East Asia are executed. The demand for associated products is expected to grow beyond 2015, as shallow water opportunities are exhausted and a reliance on deep an ultra deep exploitation becomes pivotal.

Relevance to the oil and gas industry in the UK

U.K. based analyst Infield Systems[4] state that the U.K will primarily be driven by independent operators developing marginal oil and gas fields via tie-backs to existing infrastructure. Some deep and ultra deep exploration is expected, led by International oil companies (IOCs) as they explore the U.K.’s deeper water potential, with Total’s Laggan gas field and Chevron’s Rosebank oil and gas field.

Infield also highlighted that on a global level, operators Petrobras and Chevron are forecast to account for the largest share of capital investment as a result of the “volume, complexity and increased depth of their projects”. In comparison to other segments of the oil and gas industry, where investment by operator is relatively concentrated to a limited number of oil companies, the pipelines and control lines market has a more diverse client base.

Staffing requirements

A recent study carried out by industry training body Opito and the Engineering Construction Industry Training Board[5] explains that skilled engineers and experienced managers with sector experience are hard to find and confirms that more than half of firms in the oil and gas sector say that skill shortages are their number one challenge.

The survey found the problem of an ageing oil and gas workforce had been effectively tackled, with a sizeable proportion of employees now aged under 25. The report goes on to suggest that it is now critical that candidates with experience are put into appropriate roles.

“Meeting that challenge and increasing the supply pool of experienced talent is critical if we are to avoid inter-company competition, cost inflation and the delay or cancellation of projects.” David Binnie, Managing Director, Opito.

David Edwards, Chief Executive of ECITB, said the rate of recruitment and training of technicians and engineers had to double within the next five years if the industry was to meet the strategic demand.

UK companies set to source talent from outside the UK

Some companies are broadening their talent search and are recruiting from regions with lower salary expectations. Countries where English is widely spoken, such as India, Thailand or Malaysia, are considered to be particularly attractive. Engineers from countries in southern or eastern Europe are also attractive because they are well trained.

Targeting engineering graduates

Offshore industry body Oil & Gas UK has said that attacks from groups such as Greenpeace need to be combated for fear that civil and chemical engineer graduates are put off the industry. It may be that employer branding and initiatives to adjust the overall perception of the sector need to be commissioned.

“If people don’t understand what a great industry this is and what great prospects it’s got, that it’s not on its last legs, that it’s got many decades yet to go, they might make the wrong decisions with regard to career options” Malcolm Webb, , Chief Executive, Oil and Gas UK

Conclusions

The OFS sector is expected to grow; there is a positive outlook for hydrocarbons with new markets to explore.

There are a number of challenges for the industry, the most important focus on experienced talent shortages and the industry’s cautious approach to innovation.

Closer collaboration with education, consultancy and regulatory bodies could help to boost productivity in the oil and gas sector. Through collaboration, positive operations can continue to be secured.

Notes

[1] Deloitte Outlook for oilfield services – The report is based on in-depth interviews with 12 financial directors, financial controllers, chairmen and heads of strategy of oilfield services companies. he following companies for participating in this report:

Aker Solutions Plexus

AMEC Subsea 7

Enteq Schlumberger

Getech Technip

Halliburton Weatherford

Petrofac Wood Group PSN.

[2] NRG – with increasing global energy demand, the sector is facing a range of challenges and demands. NRG help energy companies to mitigate risk through traditional recruitment services and outsourced workforce solutions designed to support the introduction and development of talented employees.

[3] Scottish Enterprise, Oil & Gas Strategy 2012-2020 – http://www.scottish-enterprise.com/~/media/SE/Resources/Documents/MNO/Oil-and-Gas-strategy-2012-2020.pdf

[4] Infield Systems ‘Global Perspectives Offshore Pipeline & Control Line Market Report’-  http://www.infield.com/brochures/offshore-pipelines-control-lines-market-report.pdf

[5] Infield Systems ‘Global Perspectives Offshore Pipeline & Control Line Market Report’

[6] Opito and the Engineering Construction Industry Training Board – http://www.opito.com/