INDUSTRY RECRUITMENT & RETENTION

Many challenges seen in solving the manpower jigsaw puzzle

 Four respected executives give their candid answers on professional recruitment and retention from the perspective of their portions of the upstream industry. 

Panel discussion with F. Richard Frisbie, Senior Vice President � Deepwater Technology, Oceaneering International, Inc., Houston; Dr. Stephen A. Holditch, P.E., Head/Noble Endowed Chair, Department of Petroleum Engineering, Texas A&M University, College Station, Texas; Douglas C. Nester, COO, Prime Offshore L.L.C., Houston; and Jon Glesinger, Managing Director, Energy & Natural Resources Practice, Norman Broadbent, London

Introduced/moderated by Kurt S. Abraham, Managing/International Editor

No technical challenge can rival the problems that the global upstream industry faces with manpower issues. Industry recruitment and retention affects every operational phase, including costs. There is a shortage of not only professional people, as in engineers, geologists, geophysicists, other technologists, accountants and purchasing agents, but also of field personnel and tradesmen.

The industry faces a “two-hump” demographic, whereby there is a large cluster of personnel in the 45-plus age bracket, a distinct shortage in the 30-to-45 group and a potential swelling of new workers in the under-30 category. In the upper end of the 45-plus group, a large wave of people is preparing to begin retiring within the next five to 15 years. This wave represents a huge amount of skill, knowledge and experience that will be very difficult to replace.

At the same time, companies are suffering the effects from the giant exodus of personnel in the late 1980s and early 1990s, in the wake of the 1986 oil price collapse, as firms sliced payrolls. This is the root cause of the 30-to-45 bracket gap. Fixing this gap will be next to impossible, save for maybe taking people from other engineering and scientific disciplines and adapting/re-training them for upstream functions.

The situation is equally dire for field personnel and tradesmen. In North America, potential candidates for these jobs want nothing to do with the industry’s pronounced up-and-down cycles, nor do they seem inclined to endure long work shifts, projects away from home and prolonged duty in adverse climates. To fill the gap, companies, particularly on the service/supply side, have resorted to recruiting military personnel or bringing in foreign nationals, particularly from Southeast Asia, Africa and Latin America. However, the results have been mixed, and safety issues have surfaced (see the sidebar story on a recent MMS Safety Alert in this section).

Not surprisingly, shortages have sent pay rates sky-high. AAPG reports that the average starting salary for a geologist with 0 to 2 years of experience is now $82,200, up 38% from the same figure in 2000–2001. Similarly, geologists with 25-plus years of experience have seen average pay rise 28%, to $149,900. The SPE reported that its average US member saw his/her salary jump 12% between 2004 and 2006, to $122,570. And these figures do not include significant signing bonuses that new college graduates are receiving, or that existing professionals obtain when switching companies.

Along with inflated salaries comes poaching of personnel between various firms. The seriousness of this cannot be understated, as workers with valuable skills and experience take advantage of the situation by offering themselves to the highest bidders, and companies seem willing to go along with it. And, as responses on the following pages indicate, some of the worst offenders for poaching are the major oil companies.

So, what can the industry and, by extension, government and academia do to begin solving the situation? To gain some insight, World Oil asked a distinguished panel of four industry executives (see the top of this page) to offer their comments and suggestions. Their candid responses are in the following, special panel discussion.

Question: What is your overall appraisal of manpower supply and demand for the upstream sector?

Richard Frisbie: Woefully inadequate. New rigs, vessels and ROVs are going to expand by >20%. IMCA just released some needs—it’s worth looking up their comments. In Oceaneering, we need about 400 entry-level technicians/pilots, an equal number of senior technicians/pilots, and more than 100 supervisors over the next 18 months. Each of these individuals has to complete a detailed competency process. We have training schools in Morgan City, Louisiana; Aberdeen, Scotland; Stavanger, Norway; Luanda, Angola; and Singapore; and we run rotating classes in Nigeria and India. Classroom and hands-on shop training is augmented by an extensive distance learning program over the Internet. Every ROV person is required to complete obligatory courses every quarter.

Steve Holditch: All the companies tell the universities that there is a manpower shortage, and we need to graduate more engineers. Our petroleum engineering enrollment at Texas A&M University is increasing from 338 undergraduates in 2006 to 445 undergraduates in 2007, plus 210 graduate students. However, the job market is not all that strong for our students and graduates. We still have students about to graduate in May 2007 with BS and MS degrees that are looking for jobs. We also have a lot of students looking for summer jobs. I would feel better about the future, if more companies were on campus trying to hire our students.

Doug Nester: I believe we are in a critical shortage of not just people, but quality people. One example of where we are being hammered as an industry is the lack of quality people in the service-side providers. From welders to drilling superintendents, we see an overall underperformance by those service providers, who so significantly impact our ability to remain at, or even close to, our project budgets.

Jon Glesinger: The fears expressed several years ago regarding the growing “skills crisis” have come to pass. Increasingly, we are hearing about projects that are being held back, stalled, delayed or even turned down as a result of a lack of manpower. Clear examples of this can be seen in Canada, the Middle East and also, of course, in Sakhalin, very publicly quite recently. Those affected include majors, independents and service companies. The level at which demand is exceeding supply would probably and fairly be represented by the pyramid that represents the demographics of any major corporate enterprise, where the layer of management at the top is very thin. It obviously increases as you go down through the layers of experience and degree of technical competence.

Although we are experiencing severe difficulties at the moment, this situation will worsen significantly in the next five years. Much is being done, but nowhere near enough when you look at the whole value chain of educating people into science, technology and engineering, bringing those people into the energy sector, going through to people with greater technical expertise that may be sought from other industries, and onto the senior ranks of leadership. There is little to be said that hasn’t already been said about the aging workforce but, what we haven’t fully come to terms with, are the longer-term effects of retirees exceeding the numbers of those coming through.

Q: If companies gear up and hire many people at current economics, and then prices fall and activity slumps, do you think they will drop them all (as happened in 1986 and 1998), or for how long would they try to retain these employees?

Frisbie: Difficult to answer. Our first step would be to cut back marginal personnel, who do not show the commitment to upgrading their skills. Unfortunately, every group has some number of such individuals, and during periods of personnel shortages, the total inevitably grows. The next step would be to reduce everyone’s workload to keep as many capable peo-ple gainfully employed as possible. However, if the market collapses, then there will inevitably be a reduction in force (RIF). We retained people on “benefits only” for a long time during previous downturns, which allowed individuals to seek alternate employment but retain insurance, retirement, etc., and we brought them back as rapidly as possible. Over the years, we have terminated very few ROV personnel, even during market slumps, by aggressively re-balancing workloads.

Holditch: The companies need to plan for such a scenario. The difference now is that 50% of the professionals in the industry will be retired or able to retire in the next 5–10 years. The companies need to have more of a long-term effort. If they let the universities down again, it could spell real trouble for many petroleum engineering departments in the US.

Nester: We try not to overact to potentially short duration changes in our industry. While planning for success is critical to our growth, we attempt to balance this growth with our long-term corporate goals. As a bottom-line answer to this question, the viability of the company must come first. Unfortunately, this means that if an environment exists in which the company could not remain viable, we would look across the board as to where pull-backs would be needed.

Glesinger: While it is difficult to imagine that 1986 and 1998 behaviors would not be repeated, one can always hope beyond hope that the lessons have been learned. I think it is fair to say, however, that the current cycle is not the same as those which culminated in significant slumps, as in 1986 and 1998. Current forecasts that revolve around a demand-driven oil business would suggest that these behaviors are neither necessary nor desired. Having said that, the industry has a far higher dependency on contract labor in certain manpower areas, and therefore is always going to be susceptible to the rises and falls that the industry offers. But with shortages, it is possible that even in the unlikely event of a slowdown, there will be no need to shed skilled and experienced staff. Hopefully though, the difference in demand curve, and the scale of the foreseen resourcing problem, suggest that companies will plan against this scenario, although there will always be those who will say “it will be alright on the night.” It will not.

Q: Do you think that companies foresee, or expect to plan on, having a two-hump demographic in your labor forces? If so, how?

Nester: There is no doubt that we are a graying industry. Some of the personnel shortages that are occurring are due to the lower number of young graduates that are entering the industry. We have been fortunate in finding some young, very talented individuals to incorporate into our workforce.

Q: Mentoring—Do most companies have formal ways of transferring knowledge from the most experienced workers to the newer people?

Frisbie: We are working aggressively to upgrade/expand our mentoring program. This is difficult during periods of record levels of projects, as everyone has their hands full day-to-day. Supervisors are assigned new crew members and are accountable for shepherding them through the competency process required for that position.

Holditch: I have a lot of faith in young engineers. I was one 35 years ago, and I thought I did just fine. I think the industry needs to support the universities, hire our graduates and set up appropriate training classes, as needed. The “retirees” will be very willing to teach such classes, and continue contributing to the expertise needed to find and produce more oil and gas.

Nester: As a smaller independent, we do not have a formal training program, which is standard for many of the large independents and majors. As a result, we do not hire directly out of college. Instead, we target younger talent that have at least several years of experience with larger companies, and hence have received the benefits of their in-house training. While possibly viewed as a parasitical relationship, our new hires are expected to be able to contribute on day one.

Glesinger: There is a generation gap between those who are going to be retiring, and those who are coming through, and there is a desperate need for the transfer of knowledge through mentoring and training to overcome the lack of experience of those who are being promoted earlier than they, or their companies anticipated. The more enlightened companies are doing just that. Norman Broadbent is currently working on a very exciting program that will provide the industry with a place to go for these sorts of skills, particularly in the area of finding and securing the services of those whose great experience has found its way to retirement.

Q: What do you make of this recent release from the MMS (see sidebar), which expresses officials’ concerns over rising accident/injury stats that the agency blames on inadequate training and lack of experience?

Frisbie: Inexperienced personnel are at higher risk in ANY undertaking, in any industry, so we should not feel that this is a unique mystery. Projects have to slow down a bit, and one must make sure that every step is understood. Repeat, reiterate, recheck are fundamental steps in this period. With high dayrates, many projects are not committed to slowing down, so one has to question the industry’s commitment to safety. The reality is, however, that the only way to gain offshore experience is to eventually go offshore. The only way to meet the growing demand for offshore personnel is to have more offshore personnel than we do today.

We are living an Alice in Wonderland experience, where there is great resistance to taking subsea engineers (SSEs) offshore, or there is a lack of beds, or there is simply a “not my problem” mentality. And, yet, everyone expects trained, experienced offshore personnel to be available for all the new rigs, vessels and ROVs, and to support all the new projects. This is the offshore industry’s equivalent of WMDs (weapons of mass destruction).

Holditch: I think it is valid. I have talked to a number of persons who are supervising rigs and field operations in the current environment. They tell me that the quality of personnel, really the training of personnel, in the field is very poor now, compared to prior years.

Nester: I believe there is definitely a direct correlation between increases in offshore accidents and the lack of well-trained service hands. As a practice, we continually evaluate the staff placed on our offshore rigs and platforms by service providers. We have, in many instances, demanded the removal of individuals or crews, who we felt were not properly trained or qualified.

Glesinger: At Norman Broadbent, we host a series of Boardroom Lunches, and one of the subjects that has been raised on more than one occasion at a very high level is precisely the issue around accident/injury rates and potentials. With the advent of early promotion, which is generally based on potential rather than experience, a lack of experience will increase exposure to risk in all areas of health and safety operations. We have talked widely about this with people we come into contact with on a daily basis, and there is no question whatsoever that this is a concern.

Two things that can be looked at for a solution to this are greater training, often being referred to as upskilling, and secondly the introduction of mentoring. But let’s also get this into perspective—while this industry does have occasional, highly visible problems, the attention paid to safety is noteworthy, the improvements have been enormous, and while any accident is one too many, the overall record compared to some other industries (certainly to driving a car) is pretty good.

Q: Are you supporting/endorsing any state, federal or JIP hiring/training programs?

Holditch: I always endorse training, when training is needed to improve job efficiency. I do not know of any specific programs.

Glesinger: Although we are not directly supporting or endorsing training programs, our work with the Energy Institute in London and Deloitte is certainly going to highlight, and promote, hiring and training programs. So, I guess in essence we are, if not directly, certainly indirectly (supporting programs). Our study, which is now about to be released in a “white paper” format, will provide some measured dimensions of the skill crisis, as well as a series of comments, suggestions and guidance in respect to potential solutions. One of the recommendations will be that the government needs to become directly involved in the promotion of engineering, science and technical qualifications at all levels of education.

Q: What does the picture look like as far as signing up college students for petroleum-related studies?

Frisbie: We are doing a good job of attracting college graduates. Assimilating them is a more difficult challenge.

Holditch: It is easy to recruit new students into the petroleum industry. We are turning away qualified applicants, because the numbers are too large for our capacity. All you have to do is show a potential student that 1) the oil and gas industry is a growing industry; 2) It is a very high-tech industry; 3) it is a global industry; and 4) the workforce is aging. If you want to see the world, and join an industry where you can use high technology to progress up the technical or management ladder quickly, then you need to join the oil and gas industry. Every time that I explain this in detail to a young person, he or she has a very favorable reaction.

Glesinger: The global picture for sign-up on education seems to be as varied in answer as the number of people you ask. In China and India, it is well documented that the universities that specialize in such subjects as petroleum engineering are producing good numbers. However, their graduates are usually employed by indigenous companies and NOCs, some of whom are insatiable giants by comparison to even the likes of ExxonMobil. In total numbers, neither country seems to be producing sufficiently for their own needs.

Some major universities in the UK and North America are reporting growing numbers entering their programs. However, look more closely, and you will find that many, if not a majority, of the students are coming from overseas. Their presence (and fees) help to keep these university courses alive, while we raise enough enthusiasm to win our indigenous students back. The bad news is that typically, they are staying for a few years’ experience, then returning to their home countries.

Q: What other avenues outside academia can be pursued for cross-over candidates, who can be trained for oilfield positions (e.g. from other countries, from other engineering and science disciplines)?

Frisbie: There’s no magic: the military would be one source. The same for declining industries, such as automotive, in particular. But, the offshore sector is a unique lifestyle, and there is a high attrition rate for people recruited from other industries that do not have these huge disconnects in lifestyle, in a regular business. That’s why the military is such a fertile recruiting ground. Recruiting in the countries where we operate is a sounder solution over time.

We have committed to developing national workforces wherever we operate, and have set up training facilities in each country and are recruiting locally. We are well into the learning curve for identifying potentially outstanding local talent. In addition, we have located the most advanced subsea training simulator in each location, which allows personnel to gain skills that, up to now, could only be gained by operating subsea. The training simulator has now evolved to the extent that it can be installed offshore, and specific tasks/operations trained/retrained in real time. This MIMIC capability is the single, most powerful capability available for improving subsea operations. It is a mystery why such capabilities are used so infrequently.

We have had great success in recruiting engineers in India and training them as ROV operators, tooling specialists, subsea specialists, etc., and using them internationally. But it all takes time.

Holditch: Training companies like NExT and OGCI can, and do, provide courses, where engineers from other industries can be converted into oil and gas engineers over a few-years period while learning on the job.

Glesinger: Outside academia, we need to look at programs. The skill will be in the ability to evaluate competency models and skill sets for conversion with the most easily available methodology. There is considerable work to be done, working with academia, to be able to provide these conversion courses. It is encouraging to see professional bodies like the Energy Institute offering chartered petroleum engineer status, which, of course, would give us the frameworks for these conversions.

Q: How bad a problem is “poaching” at both oil companies and equipment/service firms?

Frisbie: Terrible in some instances. We are experiencing recruitment of senior offshore hands by our customers, and then we are castigated for not replacing these senior personnel with equally experienced personnel. But, I see no commitment by a number of our customers to address the problem. A number of oil companies have decimated their workforces and failed to regenerate them, and their solution today is to poach what they need. The fact that this directly impacts them seems irrelevant. This is by no means unique to any one segment. I suspect that Oceaneering may be guilty of this on occasion.

Holditch: I do not know. Ask the companies.

Nester: Please review the answer to the mentoring question above, as it directly addresses this issue.

Glesinger: The problem of poaching from company to company within the industry is as predictable as the likelihood of tomorrow’s sunrise. It is as unlikely to go away, as this evening’s sunset. Many companies do have gentlemen’s agreements, whereby they do not steal each other’s staff; particularly where collaboration and joint ventures are concerned, there is little to be gained. Poaching is a problem between operators and contractors and service companies, where, typically, the operators and their higher pay scales tend to win the battle. Unfortunately, it’s the operators who then turn around to the service companies to demand quicker, better, cheaper delivery on projects. Yet, these same oil companies have, themselves, been responsible for the service companies’ workforce difficulties and inability to deliver!

Q: How badly is it affecting your company?

Frisbie: Moderately.

Q: Is there a way to remedy this noxious, industry-wide problem?

Frisbie: None, so long as intellectual integrity is absent, and hypocrisy is the policy.

Nester: Ooops...Maybe I am noxious? I do not think that is the case, because when we have hired someone from another company, we have gone first to their management and informed them of our intentions. I think you would be surprised to know that much, if not most, of the very strong, young talent is known or scouted by many companies outside of their present employers. There are many avenues that these talented individuals have today, to let the industry know that they are interested in looking at options available to them.

Glesinger: Our desire, surprisingly perhaps as an executive search firm, is that companies develop retention policies. If all of our clients were to have great retention policies, they would become employers of choice, and therefore easier and better to recruit for. The solution, of course, should be agreements in the industry from one client to the next, but with the staggered take-up of new projects, one wonders whether it can stop. But, and I cannot emphasize this too much, the best employers are well known, and that is where people want to be. Their staff turnover is low.

Q: Given the high entry-level salaries being paid, how can companies keep their older, more experienced workers satisfied amid this “salary compression”?

Frisbie: With difficulty. At some point, you have to manage the business on the basis of somewhere between a 10–20% attrition rate. And, if you want to work for a quality company, you have to decide whether another company needs anything but a hired hand. Hired hands get fired as soon as their value is gone. Loyalty is, and has to be, a two-way street. Money versus long-term career opportunity is as old as history.

Holditch: The only solution is to give everyone ‘leveling’ raises or you will lose a lot of your workers to other companies.

Nester: Pay them!

Glesinger: This is a complex problem that some companies have resolved through bonus schemes and other benefits. We are conducting some high-level research into the correlation between satisfactory cash compensation, and the provision of, and the need for, quality-of life-issues. At a time when employment and economics are favorable, and would seem to be sustainable, these issues are coming to the fore. Some companies with interested and sensitive management are taking a creative, proactive look at providing better working conditions, more education, greater recognition of achievement and more interesting reward systems. These will be the companies that rise to the top as employers of choice.

Q: How much time does the industry have available to get new skilled workers in place, before the oldest, most seasoned people begin retiring?

Frisbie: By 2010, the effects will become a serious drag on performance, if new talent is not rapidly developed. Young, energetic, enthusiastic talent can offset much of the seasoned, tired, unimaginative personnel, if aggressively recruited and mentored. Let’s not overestimate the value of seniority. But, young talent cannot easily replace the wisdom of energetic, committed specialists and engineers, and the offshore industry has more than its fair share of the latter. It is this cadre that will be sorely missed, because they can mentor multiple youths. Unfortunately, there are many experienced personnel who see no obligation to pass on a brighter, better industry. A question that all of us should ask is “are we being good stewards for the future of our business?”

Holditch: I think there is a 5–10 year window. It is not critical now but the industry needs to make plans to alleviate the potential shortage.

Nester: We have perhaps 10 to 15 years before many of us will be gone from our present companies. Give the 5 to 10 years needed to develop a solid experience and real world knowledge base, and that leave us with about 5 years to cultivate a work force.

Glesinger: Based on the fact that half the population will be retiring in the next 5–10 years, the answer has to be 5–10 years. That has to be balanced by the harsh reality that it is a mathematical calculation, rather than opinion or speculation, that there will be less people in employment across all industries in 10 years’ time. Even with extended retirement age, the workforce will have reduced. There is, therefore, a need for instant action in all areas of recruitment into the industry, whether through attracting experienced engineers, re-training through education at graduate and post-graduate level, or even junior high and high school level. It is hard to imagine that enough can be done, particularly, again, when considering that the world economy will continue to be hydrocarbon-based for some considerable time beyond the workforce retirement.

Q: Should the federal government give tax breaks or other incentives to companies for comprehensive training programs?

Frisbie: No. It will only be soaked up by the biggest companies.

Holditch: I do not see that this is necessary. What would help is for the government to support research at universities, so that we can recruit and keep the best faculty. Recently, we have lost a lot of faculty from our universities to the industry because of the salary differences.

Nester: Yes.

Glesinger: Without doubt, governments need to be doing something to increase the degree of education and training provided. It is my opinion that much needs to be done, perhaps in joint industry initiatives starting at high schools, if not earlier, rather than a single company or government initiative. We must not forget that most of the majors, and many independent oil companies, are providing internships, scholarships and other educational processes as part of their good corporate citizens programs. If these programs are tax-deductible, that makes them more appealing. Distributing motives between the need for engineers, brand promotion and positioning and corporate charity is difficult. However, a key to this is to ensure that government listens to the industry rather than focusing solely on other politically correct energy sources.

It is also, perhaps, imperative that the industry, in general, does something to enhance its reputation, visibility and attraction to consumers, in particular to people of school age and their parents, as well as those who are in other industries. This can only be done effectively through collaboration with each other and with government. Given our dependence on oil and gas, sensible tax policies and tax breaks would be good politics.