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Sun 1 Apr 2007 12:00 AM

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A shortage of people may stall the oil boom

Could a lack of physical and human resources cause a slow down in the oil and gas industry?

Management consultants, Booz Allen Hamilton says the oil and gas industry has stretched its resources to breaking point, creating the potential to stall the current oil and gas boom. From oil rigs to air-conditioned design offices, the oil and gas industry is confronted with a shortage of brawn and brains so severe that it threatens to stall exploration and production growth. In an interview with
Oil & Gas Middle East

, Raed Kombargi from Booz Allen Hamilton explained the situation.

What are the main threats the skills and labour crisis is posing to the oil and gas sector?

Inability to deliver expansion programmes, slowing down of oil and gas exploration programmes, missing the boat on knowledge transfer to the new generation of workers and/or from expatriates to indigenous workers and the migration of talent to other industries. More competition will lead to a bit more volatility in the industry as a whole. There will also be less rigour on development of the technical side, leading to future leaders that are technically less capable than the current generation.

How can the oil and gas industry reverse the decline in the numbers of skilled workers?

It is about approaching this problem with a long-term solution designed and implemented as a ‘talent pipeline' or ‘skills development' programme. There are two fronts that need to be addressed: the demand side and the supply side.

On the supply side, there has to be an effort to recruit, resource, retain and develop talent. On recruiting for example, more awareness needs to be built at the university or high school level, informing students of exciting opportunities in the oil and gas industry and raising enthusiasm about technical and environmental challenges.

What are the long-term implications of these shortages?

Shortages may lead to delays in accessing more difficult oil, decreased production levels in ageing assets and equipment due to lack of adequate maintenance, and HSE challenges and accidents.

Why have skills and equipment shortages become so acute in the last few years?

Analysis shows investment in equipment, skills, services and exploration follow the oil price trend, but lag behind it by one to three years. So with a low oil price for a while (up to late 2004), it is only normal that there was no interest in investing in equipment, skills and services during that period.

But with high oil prices over the last two years, and a renewed flurry of activity, equipment and service providers are rushing to meet demand from normal shortages, as well as from independent, new smaller-scale players, which have entered the oil and gas activity chain and are eating away at the already thin supply. These new entrants are usually less HSE stringent and willing to pay premium prices on equipment, services and skills that big international national oil companies may not be able to agree to, given their often rigid processes.

What is the reason for the increasing average age of employees working for major operators?

On equipment and services, you can throw money at the situation and solve it relatively easily. On people, the challenge is more difficult - it takes time. When the baby boomers were growing up, an engineer was considered one of the best professions, as it was very well remunerated. These people mostly graduated in the early to mid 1980s and are now in their late forties. Then came Wall Street and the ‘greed is good' syndrome. Since the late 1980s everybody got an MBA and went to work for investment banks or consulting firms. Very few people obtained science or engineering degrees, let alone a petroleum related subject.

Even today, engineers are not usually attracted by petroleum engineering studies. In the early nineties, some US universities went as far as merging their petroleum engineering departments with other departments for lack of enrolment. You cannot run an oil company with MBAs, you need technical talent.

Finally, oil and gas companies are also to blame as they were not offering good remuneration to attract talent. These were absorbed by Silicon Valley and its like, as it was more lucrative and exciting.

Some companies are looking to buy their way out of the crisis, poaching qualified staff from other firms. Surely this is just a short-term solution?

Yes. This is a short term solution that helps particular players over others. The shortage remains and it is a zero sum game when it comes to resolving the crisis, which the entire industry faces.

How can technical, operating and HR leaders collaborate to help solve the problem?

HR leaders have to work on developing people, designing packages and delivering on their recruiting promises, thus increasing the supply of talent.

Technical and operating leaders have to change the way they do business, adopting fit for purpose operability and reducing checks and balances where applicable. This would apply, for example, to engineering reviews for routine modifications.

What is the best way for companies to get resources for the long term?

Several fronts can be tackled simultaneously. Companies should ensure demand clarity and visibility, taking into account the changing ways of doing business. They should identify new sources and go after them early on at the university or school level to attract talent early on. And they need to improve internal processes and use external help with agencies as necessary. They need not be afraid to bring leadership from outside. Managers do not necessarily have to be home grown.

What are the best incentives to help retain valuable workers?

In the West, incentives are typically related to money - and more recently (since time means money) incentives are around additional days off, flexible working hours and sabbaticals are all in a way money related incentives that companies use to retain their talent. Other companies are using innovation / creativity in designing parallel careers. In the Far East, incentives can be related to pride. The recognition of being part of a business tradition and / or business culture.

In developing countries, incentives are often related to fear - fear of losing your job, fear of wrongdoing, and fear of your boss.

Typically four fronts are recommended. There should be the provision for competitive and performance based compensation and benefits. The oil and gas industry needs to improve dramatically on this front. Firms should monitor and improve job satisfaction, such as giving junior talent more challenging responsibilities. They should ensure an appropriate work-life balance. The oil and gas industry does well on this front, but more can and should be done.

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