Industry Insights
Montreux Energy Roundtable XVIII
June 6-8/07
Montreux, Switzerland
Lachlan Rhodes
The Curzon Partnership
London
After more than a decade of downsizing, the energy industry is feeling the pinch of the global talent shortage, perhaps more acutely than any other sector. Executive search veteran and oil industry specialist Lachlan Rhodes addressed the issue during the latest Montreux Energy Roundtable.
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THE PROBLEM
The average age of oil field engineers has risen to 48 – and above 50 in the US – and there are not enough recruits to sustain the $200 billion planned investment in expansion over the next 15 years. Why is this? Well, the giant oil companies have shed over one million employees since the previous oil peak in 1981. While there have been huge efficiencies and improvements in technology which have allowed for a reduced level of staffing, cost reduction programs have had a dramatic impact on headcount and the “knock-on” affect is substantial.
In reviewing the overall picture, the American Petroleum Institute declared that, “Human Resources offer a potentially more binding threat to industry expansion than physical resources.” Today one of the major barriers to growth is a deficit of people. From Aberdeen to Abu Dhabi, big oil is looking for talent.
Quoting Noble Energy CEO, Charles Davidson, “There are about three per cent of the American Association of Petroleum Geologists members who are 80 years old, and we may be needing them!”
Focusing on the specific issues:
HIRING CURTAILED AT TIMES OF LOW OIL PRICE
At times of low oil price, the vast majority of oil companies have enacted a hiring freeze, with a knock-on affect to be felt many years down the road. This has, needless to say, been reflected in the relationship with universities and their ability to deliver the talent required for the future.
Quoting a previous CEO of Unocal, “We lost a whole generation of workers. In the 1980s, petroleum engineering was not downsized at our universities – it just disappeared.”
SEEN AS A “SUNSET INDUSTRY”
Many have spoken of oil and gas as a “sunset industry.” Vast swathes of talent have been lost, much of it without thought for the future. Our PR machine has let us down badly, as many potential recruits have seen little logic in joining an industry when they perceive it to be in terminal decline.
SHORT TERM APPROACH BY MANAGEMENT
The majors have plenty of cash, but people, unlike commodities, do not always move to the highest bidder. When a shortage of talent starts to emerge, you can’t just click your fingers and hope that folk will appear out of the woodwork – too often recruitment and training are left solely to the Human Resources Department, with the business leaders failing to recognize that resourcing for today and for the future should be a key element in their strategy … they are the people who need to drive that search for talent.
TECHNICAL GRADUATES ATTRACTED ELSEWHERE
Since 1980, US universities have graduated an average of 43,000 lawyers each year compared with only 430 geologists. There has been an 80 per cent drop in petroleum engineering enrolment over the same time period. In 1983, 34 American universities offered petroleum geology programs, today only 19 do.
There has been a migration of technical minds into information technology over the last 15 years. This has been a time when the world of technology has been in serious growth mode – less the dotcom debacle – with the talent disappearing to opportunities elsewhere. A profusion of civil, transport and nuclear initiatives worldwide compete for the attention of aspirant engineers today – the talent that you seek has a lot of attractive options lying ahead, and this industry does not necessarily come top of their list.
COMPENSATION NOT KEEPING UP WITH THE MARKET
There are various elements to this – what other industries are paying, what your competitors are paying, and there is a stress today on the key element of incentivization, which can play a huge part in both attracting and retaining your staff.
Then there are new challenges on the compensation front, such as the ability to acquire significant wealth in recent times, which is leading many employees to take early retirement and disappear when they are most needed.
LACK OF A TALENT MANAGEMENT STRATEGY
This is all about making the most of the talent you have – both for their benefit and for yours. More companies are coming up to speed here, but some of those in the audience will recall instances where senior management have, whether in reality or only perceived, taken some of their best talent for granted, and been surprised when they flit elsewhere.
You can add to the list of problems all too easily … more important are the solutions ….
SOLUTIONS
It is not all “doom and gloom” out there – those who make a serious effort to focus on retaining existing talent and sourcing new are prospering. But we should highlight the fact that you can’t take your existing people for granted, and you need to be creative in how you pursue new people to join you.
KEY TASK FOR SENIOR MANAGEMENT
It is to the leaders in our industry that we need to look at the outset. Successful staffing is of paramount importance in delivering against a growth strategy, and staffing matters cannot simply be delegated downwards – they are a key issue to be addressed at Board level, whereon the delivery of solutions can then be delegated.
CHANGE THE INDUSTRY IMAGE – POSITIVE MARKETING
How is the oil and gas industry viewed? All major companies have substantial PR budgets, and it must be recognized that dollars have to be spent in countering negativity. Are we nasty polluters? Are we green? Are we “hire and fire” organizations? Are we an industry in its death throes? …. Why should young graduates join our industry? While in years gone by, the oil industry was seen as hugely exciting, can that excitement still be portrayed? The positive message needs to emanate from top management, from PR departments and from the employees of the industry itself who are well placed to sell the message to potential recruits.
RECRUIT LOCALLY AND INTERNATIONALLY
You all know to look near and far for talent. Many companies recognize the need to tap into distant talent pools – for instance, companies in the Middle East often focus on hiring Malaysian expatriates who come from a similar Moslem environment, and at a lower cost than local staff. And for Western companies, there is a recognition that some additional training can bring up to speed those who have a good technical grounding from their country of origin in the developing world.
COMPENSATION – STAY COMPETITIVE
What is competitive compensation? Do you really know the local market? All too often I speak to companies who patently do not understand how others are compensating their staff. So market knowledge is imperative – and if you want to avoid paying top dollar, don’t be surprised when you can’t hire the best. Then, in addition to competitive base salaries, incentivization through cash bonuses and equity participation are key – early grants of share options, long term incentive plans, “golden hellos” all play their part. In today’s market, there must be a counterweight to “golden handcuffs.” Those that share prosperity across the workforce rather than just at the highest levels tend to prosper.
UNIVERSITIES AND THE PART THEY PLAY
Where we are looking at the graduate population, it goes without saying that links to universities are of paramount importance – the effort put into building links with academia pay off, and need to include sponsorship of students, grants for professorial chairs, and their like. The university milkrounds are being improved. The majors are also paying attention to the need to build their brand with marketing savvy students by using ambassadorial teams and personal support for potential recruits.
We are seeing some light, with enrolment in geological and petroleum engineering schools increasing, with many schools having diligent programs to re-position petroleum engineering as an attractive career path.
Then the skill levels of the developed world can be transposed to the developing world – for instance, in Qatar a branch of Texas A&M has been established.
TRAINING AND TALENT MANAGEMENT
While some companies are offering more scholarships and internships, others are developing training programs to enable field engineers to become technical experts. Companies competing for talent need to be very serious about their talent management strategies – and the successful companies will be those with an integrated set of strategies.
It is important to manage the full life cycle of the workforce at each level across each position. The solution is not just to throw more money at people, but maybe to put some investment dollars into talent management strategies, which should include: 1. increasing career options 2. offering more training and development 3. collaborating with colleges/universities and professional associations 4. financial incentives – higher salaries/incentive pay/improved benefits
WORKING ENVIRONMENT AND WORK/LIFE BALANCE
People like to work in an environment which is well thought out – gone are the days of an old Portacabin sufficing – quality of workplace is important. Just to take an example, Petrobras are building a $74 million floating hotel for 300 workers offshore, which will include cinemas with theatre-style seating, television rooms with screens of at least 80 inches, a heated outdoor pool, a communications room for e-mail and phones, and a mini-hospital. The indoor gymnasium will feature weight training and free motion equipment. Similar facilities can be found in the remote Canadian oil sands, along with on-site airstrips capable of landing 737s and enabling fly-in/fly-out options.
Across all industries increased attention is being focused on work/life balance – it is a function of modern life! And what about flexible working, part-time working, nine-day fortnights, remote working … be creative, offer options, recognize how the work/life balance matters.
GREATER INCLUSION
Some companies are putting a considerable stress on getting a better balance of men and women in their workforce – this is not political correctness, it’s a matter of addressing the resources out there and going after them!
GETTING VALUE FROM RETIREES
Some are looking at enhancing retirement and pension plans to entice veterans to stay a few years longer. Some are re-hiring retirees so that they can be retained on a flexible basis. Both allow access to a valuable talent pool.
WHEN IN DOUBT, LOOK EAST!
Globally the situation is not so dire, with thousands of engineers graduating in China and India – a figure of 500,000 in China between now and 2010 has been mentioned; while few have specialized in petroleum engineering, the oil majors have aggressive recruitment and training efforts underway to tackle this…. Although this talent pool may benefit the NOCs more than Western companies....
CASE STUDY
To see much of this at work, we need only look as far as Schlumberger, an enterprise familiar to all of us here, I’m sure, as one of the two largest well servicing companies in the world. They have a long track record of hiring internationally and their 76,000 employees now include some 140 nationalities.
They’ve achieved this by building — and maintaining — close links to more than 50 universities around the globe. The longevity and consistency of their program can be seen when you consider it takes two generations to reach the upper echelons of management. Their top 40 executives currently include 18 nationalities and the top 200 staff come from 50 different countries.
They also make a genuine and methodical effort to provide global experience to their people. Of the staff recruited from any one country, one-third remain there, one-third work elsewhere within the region and one-third are posted globally.
CONCLUSION
From a lot of years devoted solely to securing talent for a number of energy industry clients, the following lessons stand out:
Offer challenge — people want to know they’re building experience, not just repeating the same first year’s experience 30 times over.
Offer career progression — same general idea, plus remuneration.
Sell the opportunity — our industry has to overcome “sunset’ and “boom/bust” images. A lot has been done to reinforce these perceptions in past years and it will take serious work to undo the damage.
Put some pace to your hiring process — in this economy, yours is very likely not the only offer before the candidate.
Limit the jury — in this job market, you don’t want to become known for bureaucratic staffing processes.
Offer competitive remuneration — yes, this includes base, bonus and equity.
Deliver on expectations — in today’s market, keeping employees is as important as finding new ones. And the people you keep are your best assets for attracting new talent.
Lachy Rhodes is leader of the energy practice for the London-based executive search firm The Curzon Partnership. He is also leader of the global Energy Practice Group for IIC Partners, Executive Search Worldwide. IIC Partners is the world’s eighth largest search organization by revenue, with more than 50 offices in 38 countries. |
