Engineering under pressure
  from: Offshore Engineer
  by: Jennifer Pallanich
  Monday, April 07, 2008

With an aging oil and gas population and a small candidate pool, the industry faces a talent squeeze. Jennifer Pallanich opens this month’s review of recent developments in the area of offshore industry recruitment, retention and training with the findings of a recent Cera study projecting shortfall numbers in the engineering ranks and a look at how the industry plans to respond.

Companies coping with the personnel crunch are resorting to poaching or recruiting from other fields. Cambridge Energy Research Associates (Cera), now part of the IHS empire, released a study for the multi oil company forum Capital Cost Analysis Forum Upstream in September that predicts a growing shortfall of engineering expertise over the next few years.

‘We looked at the numbers we have, made an assessment based on SPE average age, what the average age of our workforce was, and how many people were near retirement,’ explained Candida Scott, Cera’s director of cost research. ‘We looked at supply, and we looked at demand.’

The research took about three months to complete, she said. On the demand side, the firm leveraged an internal study called the Cera Global Oil Capacity Outlook, which tracks over 400 upstream projects slated to move forward in the next few years. Based on that study and other research, Scott said, requirements for engineers and project managers will continue to rise between now and 2010.

On the supply side, Cera assessed the engineering workforce available for planned upstream projects as well as engineering students graduating into the energy industry. Further, Scott said, the researchers asked contactors about the gap between a graduate moving into a position and gaining the experience needed to be a real help.

The analysis indicates that total upstream engineering design staff-hour needs will increase to over 79.1 million by 2010 from 73.5 million in 2006, and project management requirements will rise almost 10% from 19.1 million staff-hours in 2006 to 21.1 million in 2010. More than 55,500 engineering personnel will be necessary to provide this volume of work in 2010.

‘Our modeling shows that unless there is a dramatic change in the industry, the next few years will experience a greater imbalance between needed and available staff,’ said Pritesh Patel, study co-author and associate director of Cera’s Capital Costs Analysis Forum. ‘We have seen projects where no one bids for the work because they don’t have adequate resources, and the quality of the engineering workforce will increasingly become an area of great concern and focus in the medium term.’

With the industry recruiting aggressively, Cera forecasts a 2% influx of new entrants in 2008, rising to 5% in 2010 as more graduates gain the experience necessary to work on complex projects.

According to Scott, the report’s findings are grounded on the assumption that Southeast Asian design houses and CAD centers will help meet demand and that an estimated 6% of the workforce will retire annually. By 2015, she said, the expectation is that about 50% of the current workforce will be retired. These numbers provide the basis for the report’s estimate that by 2010 the industry will be running with a staffing deficit of about 10-15% on planned engineering projects, Scott said.

The net result of the 10-15% shortfall of qualified staff by 2010 will be increased costs and further delays that will have cascading effects in other markets, according to Cera.

‘We’re sitting at a pivotal point right now,’ Scott said. ‘This is really the first time somebody’s actually made some quantification of the problem.’

Many companies are struggling to address the shortfall, she noted. Those efforts range from retaining retired personnel as mentors or on a part-time basis to poaching capable employees from other companies. ‘We’re all stealing from each other,’ Scott said. ‘We’ve got to bring in people.’

Bringing in people from parallel industries such as the downstream sector, she added, is not an optimal solution as those industries also face an employee shortage. ‘They’re trying to answer the same question.’

Scott suggested that as companies strive to find their own answers to the shrinking talent pool, they will redefine their business relationships and models. ‘The relationships between contractors and oil companies are starting to change slightly as a result of this shortage of people,’ she observed. Contractors are changing bidding strategies and methods of performing contracts, and relationships among contractors, oil companies, vendors and subcontractors are evolving to include partnering, profit sharing and long-term commitments among other strategies, according to Cera.

The Cera report stopped short of making any recommendations, Scott said. Also for Capital Cost Analysis Forum Upstream, Cera is conducting a similar study on equipment and service lines and she said results are expected around the turn of the year.

The cyclical nature of the industry is most certainly a factor in the personnel crunch where resources are few and the average age is high. ‘This is a crisis of our own making,’ Scott said.

The upside? Promotional prospects are high, she said. Attracting youth into the industry will require a focus on high technology, and the environment via the ability to work with alternative renewable energy resources, she added.

According to Scott, ‘Be part of the industry and help change it,’ is the message the oil and gas world should spread.

The word of petroleum engineering demand is getting out, and universities are noting record numbers of students enrolled in petroleum engineering programs, according to Lloyd Heinze, chairman of the department of petroleum engineering at Texas Tech University. Across the US, said Texas Tech, nearly 3700 undergraduate students are enrolled in petroleum engineering programs for the 2007-08 academic year.

‘By next year, we probably will go above the 1983 record of 531 if the trend stays the same,’ Heinze said of Texas Tech’s program levels.

Help wanted

Meanwhile, the opening session of last month’s SPE Annual Technical Conference & Exhibition in Anaheim, California, devoted its attention to how the industry is meeting staffing demands.

Anthony Smith, vice president of operations for Northern US and Alaska at Smith Services, told delegates it was time for the industry to look elsewhere for talent. ‘We can continue to poach and steal people from one another with bigger compensation packages, but all we are doing there is playing musical chairs,’ he said.

Part of addressing the projected shortfall in engineers, he said, is adapting recruitment methods of the past to meet needs and values held by Generation Yrs. Smith said this is important because Generation Y members tend to work to live and are often not as impressed by authority as baby boomers tend to be.

‘They just have different needs and different values,’ Smith said. ‘We need to understand that when we try to recruit them into our business.’

Tightness in the labor pool may be true in some locations, but it pays to look in other locations for able applicants, noted Lawrence Pope, vice president of human resources and operational excellence at Halliburton. He said Halliburton has successfully recruited engineers in places like India, Brazil and Indonesia. Even when recruitment works, he said, ‘retention is more critical’ because the more employees a company can retain, the fewer it must recruit.

Competitive compensation and investing in career paths are two ways Halliburton works to retain employees, Pope said.

Quickly and comprehensively training recruits ahead of the looming crew change is equally important, said Patrick O’Bryan, wells director for BP Americas. He cited the median age of well site leaders (WSLs) in 2003 at BP Americas as motivation for creating the Accelerated Development Program (ADP) for training WSLs rapidly.

‘Little or no hiring (of WSLs) had occurred in the 1990s,’ O’Bryan said. ‘Clearly, we had an issue.’

Consultant use would only help for a while, he said, as the demographics among able consultants mirrored that of the inhouse WSL demographics. The situation demanded a rapid turnaround, he said, so BP developed the ADP to increase the company’s WSL numbers.

The challenge included matching potential employee lifestyle desire with that of the WSL lifestyle, he said. The first members of the ADP graduated from the one-year program in November, the second class started in June, and the third class begins training in January.

‘We can do accelerated development, and we must do accelerated development for some skills we have in this business,’ O’Bryan said.

To be successful, he added, it is important that the trainers give their undivided attention to the program, there are clear goals, the right candidates with the right expectations enroll and classes and OTJ are fit-for-purpose. Finally, he said, at least in the case of WSLs, it is important to have a strong partnership with the business as the program means extra trailers at well sites.

Joe Bryant, chairman and CEO of Cobalt International Energy, noted that bringing employees into a company when that company lacks the training facilities of multinational companies can be extremely difficult. Cobalt, which Bryant founded two years ago with himself as the only employee, now has 40 members on its staff (OE May 2006). Recruitment ‘was absolutely critical to me,’ he said.

‘Today we find ourselves exactly where we were in 1980: lots and lots of money and not enough wise people to make spending decisions,’ observed Bryant.

Developing people takes a similar amount of time to developing a field, he said, stressing that once those people are developed ‘we need to keep them fully engaged so that retirement is the last thing on their minds and not the first’.

Flexibility about location is one way Cobalt has found it can entice employees, he said. ‘We don’t need people in the office every day if that doesn’t work for them. Sometimes I think in this industry we live with systems because they’re what’s there, not because they’re what we need.’ OE

Push to standardization

As oil companies struggle to find ways to retain knowledge, some suggest that standards may be the path.

‘As we lose people in our industry, we are going to lose knowledge,’ said Dr Agustín Diz, director of knowledge management for Repsol YPF, during the second Annual Standards Summit in Houston in November. He said there is a difference between what one learns through being taught and what one learns through experience. ‘I cannot teach you to ride a bike by riding mine.’ Open standards are meant to enable knowledge, information and data management, according to Energistics, which sponsored the standards summit. Diz is not suggesting that standards are appropriate for all areas, but that they are useful in many categories, such as G&G taxonomy.

‘How much are we losing in value because we’re not using standards?’ Diz asked.

‘Technology is moving forward at such a rapid pace that it is challenging for energy company executives to keep abreast of the advances,’ said Mike Benjamin, chairman of the Energistics board and international clients director of Schlumberger. ‘The pace of change will accelerate even more over the next five years, which is why the implementation and deployment of standards is more important than ever. The Energistics Standards Summit provides a forum to discuss how standards can improve profit drivers for the exploration and production industry.’

Steve Cooper, vice president of IHS Energy, noted that most companies face similar challenges in managing information: ‘overwhelming’ volumes and the challenge of extracting value, sharing across the company and companies, and the looming crew change.

‘I think they can all be significantly alleviated by open standards,’ Cooper said.

Jim Pritchett, president of Petris Technology, said standards that the industry agrees should incorporate legacy systems and data. ‘We have to live with what we already have.’

Diz said sometimes decisions are made based on how information is being used in the present, not how it may be used in the future.

The trick with convincing company leaders that data management is essential is that it’s difficult to prove a ROI for implementing a system, Cooper said.

‘It’s been said we spend 80% of our time looking for data and 20% of our time using it,’ Pritchett said. ‘I think we can do better than that.’

Energistics president and CEO Randy Clark said the summit helped the industry better understand the importance and benefits of collaborative technologies.

‘Engaging the entire upstream industry in the collaborative development process can significantly improve operational efficiencies and optimize production,’ Clark said. ‘Today’s leaders want to help drive this technology revolution.’ OE

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