INDUSTRY RECRUITMENT & RETENTION

Personnel shortages just don’t solve themselves

 The dean of collegiate petroleum engineering department heads in the US speaks his mind on the personnel issues facing the upstream industry, and offers timely advice and solutions. 

Dr. Craig W. Van Kirk, Head, Petroleum Engineering Department, Colorado School of Mines, Golden, Colorado

Perhaps the knottiest problem facing the global upstream industry today is personnel shortages and logistics. It is a complex problem with many facets. There are issues surrounding how to attract and retain young people for the next generation of work. There are also challenges related to retaining and rewarding veteran employees, particularly those with 20-plus years of service. At Colorado School of Mines (CSM), our mission is to educate and update people for careers as petroleum engineers. In that effort, we come into contact with many stories, facts, trends and studies. Accordingly, what follows are my observations, experiences and suggestions, as relate to upstream personnel challenges.

OPPORTUNITIES FOR YOUNGER PEOPLE

The market for younger people in the upstream industry right now is fantastic. I know this, because I’m here with our students all the time and am fully engaged with the global industry. I’ve been the Petroleum Engineering (PE) Department head here 27 years, and I have many compatriots at schools worldwide.

Traditional roles. There’s still a lot of work for upstream professionals to do for a long time in conventional oil recovery. Here, in the US, we’ve been ahead of the rest of the world for a long time, because we got started first. But now, in the Middle East for example, more of those large oil fields that have been producing on primary recovery for decades, or on relatively simple waterfloods, are going to need more attention for better reservoir management. Not that all of the previous effort has been ineffective, but there is a need for more exotic recovery techniques. In addition to conventional oil around the world, there is plenty of work to do with heavier oil. Canada is one example, and there are other heavy oils around the world, including the Middle East. Another factor is tight gas. This is a resource that is seeing increased development. So, I think that traditional oil and gas (even coalbed methane) will continue to have a great need for additional personnel for decades to come.

Dr. Craig W. Van Kirk

Alternative roles. Petroleum engineers get involved in many more things than just conventional oil and gas. Here, again, there are plenty of opportunities for new graduates and cross-over new hires. For example, one of our young lady students graduating this May is going to work in Canada in the tar sands. Her degree is in petroleum engineering, but she’s looking forward to going to work in a career that is very non-traditional, with an unconventional application of her education.

Also, when one thinks about the other alternative energy systems that should be expanding through the years, some of those systems are also going to need boreholes drilled into the Earth. This could be deep bore-access to geothermal energy that isn’t needed at the moment, but could become a valuable means of generating electricity and providing heat. Think of it like natural gas storage underground.

And then there is CO2 injection into the earth. We think of it in terms of enhanced oil recovery, which has been going on for almost 30 years. Yes, the application of CO2 injection for EOR is going to continue. But in addition, there might be CO2 injection going on in some places that have nothing to do with EOR. It may be that humanity wants to get rid of CO2 and stick it underground for some other reasons, many of them environmental. So, who’s going to create, construct and manage the wellbores, wellheads and facilities? Well, that’s why I see another whole arena of opportunities opening up for petroleum engineers for many decades into the future.

People with 20-plus years of experience have been around long enough to know very successful people in all walks of life. And when they learn what the majors of these successful people’s four-year bachelor’s degrees were, sometimes they’re a little surprised. They’ll say, “Their bachelor’s degrees don’t sound very related to how they got rich and famous.” But as the years go by, we realize, “that’s not so surprising. It’s not so uncommon.”

Young people think that if you earn a bachelor’s degree in something, then that’s what you’re going to do for the rest of your life. Yet, the point is that a lot of our BS in PE students for many years, and today still, have intended to go to law school or medical school, sometime soon after receiving their BS in PE degrees. We find that they do well, and they turn out to be very successful attorneys or doctors. So, PE as a basic education is just as useful and valuable as a stepping stone to other walks of life, just like many other BS diplomas.

A short-term fix for the professional personnel shortage will be to train and further educate cross-over candidates from other industries, and engineering and scientific disciplines.

Shortages in specific positions. The major oil companies are certainly consuming lots of engineers, geologists and geophysicists. But they are also gobbling up accountants, purchasing agents and commodities traders. They can tell you more specifically what is the case for their respective companies.

However, from my vantage point, I have talked to many representatives from oil companies, for many years. Accordingly, my feeling is that there are so many shortages in so many areas, that it really doesn’t matter too much to a young person. Let’s say a young PE wants to focus on drilling or does not. Maybe he wants to focus on reservoir simulation. There is no reason to discourage any of these young people from a choice or preference, because there’s so much need for all positions.

From our perspective—we producers of young engineers have a broad curriculum, requiring students to take classes in all subjects, from drilling to reservoir modeling and economics. Sometimes, students will say, “I don’t care at all about drilling, do I really have to take that drilling class,” and we say, “for sure, if you want a BS in PE from CSM.” In fact, after they get out and go to work, we get communications every day from our alumni, saying how happy they are and how grateful they are that we gave them all the “inoculations” that we knew were good for them.

OPPORTUNITIES FOR SENIOR EXPERIENCED PEOPLE

Where are the best opportunities for people with 20-plus years of experience? This is a good question. I can cite some observations made while traveling within the Middle East about 15 times over the last three years. During these trips, I have talked to officials in many national oil companies, including Saudi Aramco, ADNOC in the UAE, Kuwait Oil and several companies in Egypt. Time and again, they have told me that one of their dire needs is manpower at all levels, but especially older, experienced people that can be mentors to the youngsters. This is one of their biggest deficiencies.

These oil companies still don’t have enough new young people coming in, but they’ve managed to build up large numbers of them over the last several years. Yet while the companies need more and more young people, they don’t have enough carrying capacity on their staffs internally to handle the influx as it arrives. For instance, new employees may report to work on a Monday and go to Human Resources that day, but what about Tuesday—they’re ready to go to work, but there aren’t enough senior people to guide them and be team leaders.

So, what I understand clearly is that many international oil companies, and American firms, too, would like to hire some elders to mentor the youngsters, on real projects and real data— how do you do it, where do you start, and when do you know that it’s time to stop working and give the report and recommendations to management? There is also no reason why the elders cannot be doing real work, while they also mentor the youngsters. In fact, I’m reminded that when I worked for Shell from 1969 to 1974, Shell didn’t have an official mentoring program set up. But it was just their common practice that elders provided time, advice and guidance, frequently and naturally. And it was very effective.

Cross-over candidates. In the short run, until greater numbers of graduates enter the industry from the universities, the industry may have to hire cross-overs to beef up staffing. Look at the situation from this perspective—in CSM’s graduate program and in all petroleum universities’ graduate programs, it’s very common that almost half of graduate students do not have BS/PE degrees. Right now, CSM has a little over 80 graduate students, and historically the rate of non-BS/PE students has been around 50%, maybe a little less than that. These graduate students tend to have bachelor’s degrees in mechanical or chemical engineering, maybe geology, math or science. For many decades, this has been true.

Frequently, young people get a bachelor’s degree in another field of engineering or science, and then they learn, either in their senior year or soon after graduation, that there’s a petroleum industry out there with petroleum engineers that are their friends, college roommates, or whomever, all making good money and enjoying the professional challenges. These young people decide that they want a piece of this, so they come to us to get a masters degree in petroleum engineering.

We’ve been handling these transition cases for decades. We require them to go back and take some undergraduate courses, not all but some of them—imagine a mechanical engineer, who certainly never had a course in geology. We require such a person to go back and take some geology, geophysics, and some of our undergraduate petroleum engineering courses. These students have to do this before they can get into the full swing of our graduate program’s advanced classes. So, this adds around three semesters of full-time classwork. And then there are at least two or three more semesters of actual graduate level efforts.

Not all young people will choose this. When we describe this schedule to some prospective candidates, they say, “That takes too long and too much effort,” so we say, “okay, goodbye.” But many students do accept the challenge, and I can’t think of anybody ever quitting.

In terms of experienced people who can cross over from other disciplines, some come back to our graduate programs, but most do not. The oil companies and the service companies have been hiring off and on, more or less, these kinds of people for many years. Again, one of their problems has got to be not enough mentors, not enough trainers.

CSM is very involved in training these kinds of people, many from outside the US. China sends a lot of folks to us for such training, for three, six or 12 months. We do similar things in the Middle East, where we take career PEs and geologists from countries that are not up to world standards in petroleum technology, understanding and experience, and we take them to a higher level. We’re also quite involved in training, but not for credit or diplomas. We also have Outreach programs for training. Another thing that we do in the summer is hold a three-week intensive course on campus for exactly these kinds of people.

PLANNING FOR A TWO-HUMP DEMOGRAPHIC

Given the personnel attrition of the 1980s and 1990s, plus the demands of today, it appears that a two-hump demographic is inevitable. This refers to the concentration of older talent in the 45-plus age group, followed by a huge deficit in the 32-to-45 group, followed by a growing concentration in the under-32 category.

Cyclical shortages are nothing new. For instance, I was a freshman in the fall of 1963, when I started majoring in petroleum engineering. At that time, I was the only one in my class who chose that major. This was the University of Southern California, and a thousand new students joined the School of Engineering that year. Of that number, 500 people chose aerospace engineering, and another 499 chose electrical engineering. I was the only one who declared petroleum engineering as a major. All of my new School of Engineering buddies and I were taking math, chemistry and physics together, and they all said that I was wrong, because I chose to be in the “minority group.”

At that time, I began to get familiar with the petroleum industry’s cycles that go back to the 1950s. I experienced them in the 1960s as a student, and then while working during the late 1960s and most of the 1970s. I came to CSM in 1978 to be a professor, and I have watched these cycles from this vantage point since then. So, I know the cycles’ history—nobody wants them, nobody plans on them. We all experience them, and some people don’t survive. Either individually they’re gone, their university’s program is gone, or their corporation is gone.

The fact of the matter is that there are two humps, and the companies have seen this coming. Any good business is going to understand its employee demographics for the future—this is not a new thing. About five years ago, we had some SPE meetings and other gatherings of companies and universities, talking about, “Hey, the big crew change is coming.” So, this two-hump phenomenon has been predicted and known and understood for more than five years—perhaps among some companies even 10 years ago. What is different today from five years ago is that we’re farther into the reality. Some companies have done some planning and acted during the past four to eight years, and other companies have not.

COLLEGE ENROLLMENT

As the head of one of the largest US petroleum engineering departments, I keep a lot of numbers in my head, such as enrollment and graduation figures. Historically, CSM’s PE department has produced some of the largest annual graduate totals in the US. In some years, Texas A&M has been bigger, and in some years Texas-Austin has had larger numbers. But CSM’s PE Department has, for several decades, produced among the largest numbers. Mind you, it’s not a contest.

Every employer, be it an oil company or service/supply firm, needs about two to five years to get a young employee up to speed, before he or she is relatively independent and profitable..

Given my tenure as department head, I know all the other PE department heads in the US, and many of them internationally. Two or three times a year, we US department heads get together; always in the fall at the SPE annual conference, and then usually in the spring. There are relatively few of us, about a dozen. As I wrote this article, we were set for another meeting on April 13. Our get-togethers are informal, and we share lots of information, data, problems, solutions and so forth. It’s very helpful.

One of the things that we share is statistics about numbers of students and graduates, and faculty salaries, etc. In the past six months, we assembled data from last year. It turns out that last year, CSM produced at least as many if not more BS and graduate degrees than any other PE program in the US. We had 39 BS graduates, and about 29 MS and PhD graduates. Again, it’s not a contest, but I think most people assume that the Texas schools are the biggest, and some place like CSM is small. Well, it’s not true.

This year, we’ll produce about 70 BS graduates. The following year, 12 months from now, we’re going to produce 100 BS graduates, because that’s how many we have in our junior class. Then, the year after that, it looks like around 125. Our graduate program is increasing, also. Thus, we’re going to graduate about 30 advanced degree students per year for the forseeable future.

New PE building plans. A major new development on our campus is that we’re in the process of designing and constructing a brand new building to house the PE Department. One of our alumni in the last 18 months has given us $10 million to prime the pump for a new building, and we are in the process of raising additional millions of dollars.

We will construct about a $35 million building. It will be a world-class, global center, especially for the multi-disciplinary integration of PE with geology and geophysics. The architects and engineers are getting ready, probably in the next few months, to knock down an old building and start construction of the new one. There is no final contract at this time, but I would estimate that the occupancy of the new building will take place about 2 ½ years from now. We do have some sketches, the architects are coming along, and it seems like I spend at least a day with them every week.

We’re designing the new building for about 2½ times the space that we currently have, so that we can function with more faculty, more undergraduate students and more graduate students, and do it all at the high-quality level that we desire. This process isn’t simple, and one of the problems these days is hiring faculty. There are shortages of all kinds of people in the industry, and that includes individuals that could be good faculty members. No, it’s not a zero supply situation, but the marketplace for talent is very competitive, just like it is for the 22-year-old bachelor’s students.

Managing enrollment. Periodically, I’m asked if CSM will manage its PE enrollment. Ironically, in the 1980s, I was successful in getting our school to agree to an enrollment management plan, because, up to that point, there wasn’t one. In the late 1970s and early 1980s, there were far too many students. So, I was successful in implementing that plan many years ago.

Today, we’re not asking for that kind of relief at this time. This is not October 1973, when the Oil Embargo was a big turning point in our business. Before then, things were in a relatively steady state and kind of pleasant; the price of oil was around $2.50/bbl, and everyone was okay. But after October 1973, the price skyrocketed, it was in the news a lot, and enrollment increased too much.

Prior to 1973, the CSM PE Department frequently had the biggest enrollment, but with the increase of the late 1970s and early 1980s, the Southern universities passed us on the way up. However, when the downturn in the early-to-mid 1980s occurred, the Southern universities passed us on the way down. Our peaks are not as high as those guys, and our valleys are not as low. The smallest senior class that we’ve had since World War II is about 25, including the period 20 years ago in the middle 1980s.

Whether we have 25 in a class or 125, we can be okay. I wouldn’t want 250 or 500—there is a reasonable upper limit, but 125 is okay, especially with new faculty and additional space in a new building. Right now, we don’t anticipate asking for any kind of controls. And the only controls that our university would consider would be at the undergraduate level, because those numbers are the ones that swing the most. And most petroleum engineering departments don’t have the authority to limit undergraduates—that rests with the admissions offices and the administrations.

At the graduate level, we have total control. For masters and PhD students, the departments decide which applications are accepted and which are not, and what the numbers will be. So, we can balance the graduate student numbers easily.

EMPLOYEE RETENTION

During the late 1980s, and again during the 1997-1999 period, companies released a lot of people that they had hired in previous years, when oil prices were better. Now, prices are high, more people are being hired, and the inevitable question is “What happens if the oil price falls significantly? Will the new hires be laid off?” That’s a good question, because I’ve been through this cycle several times—not personally suffering, but people around me, recent graduates, friends, etc. Back in the 1970s, prices rose toward today’s equivalent of $100/bbl. Then in the early to mid-1980s, they fell to $10/bbl with huge layoffs.

I think that some companies are going to say, “This is free enterprise, a market economy, and there’s no way that private corporations are going to guarantee that they’re going to employ a whole lot of people that they can’t justify.” On the other hand, some companies might have some history, some historical knowledge or memory, so that they remember how in the mid-1980s, they got rid of too many people, and thus have suffered since then for not having enough folks. But I’m not suggesting that they should have kept everybody.

Accordingly, for whatever reason, if the price would go down, and companies have more people than they need, I cannot imagine that they would keep everybody. Certainly, they would try to keep more than the bare minimum. But in a hypothetical situation where the price goes down, there would be some information as to why this happened, and then there would be forecasts as to whether it would be a permanent shift or just temporary. What happened in the late 1970s and early 1980s was too stupid, on the way up, and then on the way down.

Poaching. One of the unfortunate consequences of a labor shortage is that companies in the industry resort to the “poaching” of talent from one another. Alumni, friends and associates tell me that poaching is alive and well. How bad is the problem? The companies could answer that question, very accurately and statistically. Whether the poaching rate is 5% or 10%, they should know.

In most of the industry’s past, the big oil companies would get most of the young students/graduates, and get them very well trained, officially and through on-the-job experiences. After about five years, it was common for young petroleum engineers and geologists to leave the big companies and go to work for independents. For decades, this was the common direction that poaching went. In more modern times, say the last 5 to 10 years and especially right now, poaching goes in all directions. The big companies are much more likely to hire somebody with 5, 10 or 20 years’ experience, as compared to 10 years ago, or 30 years ago.

Salary compression. Another phenomenon is the high starting salaries paid to new graduates by the industry, rates far higher than what was paid to most senior personnel when they were young. If I was advising operators or service/supply firms, I would tell them, “Don’t do salary compression.” I would tell university administrators as well, “Don’t do salary compression, because everybody’s going to lose—individuals are going to be sad, disappointed and the malaise spreads throughout the organization.” If you want to ruin a good team, do salary compression. If you’d like to optimize your chances for a good team and success, do not do salary compression. Pay somebody what you think they’re worth to you, or get rid of them. I don’t like slavery, and I don’t like anybody taking unfair advantage of somebody else, including financially.

The retirement wave. So, how long does the industry have to get its personnel problems in order before the oldest, most senior workers begin retiring? Maybe the oil companies can answer that question better, because they know their demographics. Different companies are going to offer different kinds of incentives for their elders to stay on, whether it’s full- or part-time. I know a lot of elders—55, 60 or 65 years old—that have nice part-time arrangements with their employers, where they don’t have to work 40 to 60 hr/week. They’re working 10 to 30 hr, and everybody’s happy. As far as how much time before many retirements begin, it depends on how you answer the question. What’s significant—20% of the workforce, 51%, en masse?

This brings up a corollary point—when should the companies react to prepare themselves for a mass exodus? Well, in some firms, it will be the day after, and that’s too late. Companies need some lead time. Every employer needs to get a young employee in for several years—two to five years before the employee is relatively independent and profitable, and capable of leading a team.

Professional vs. tradesmen shortages. Whether there is a greater crisis for supply of professional personnel or tradesmen is hard to say. The industry needs more of both. I guarantee that there is a huge shortage of professional personnel, much bigger than the supply. It’s going to be true for a long time. But there is also a shortage of drilling hands, fraccers, roughnecks, roustabout, etc. In terms of field hand inexperience, all of us know that a roughneck has the ability to make something really bad happen, either on purpose or by ignorance or inexperience—something bad that would be seen on television.

Whereas a petroleum engineer who’s not very well prepared, or who makes a mistake in the office, is not very likely to wind up on television. The answer to the question is that it’s not just simply the body count, but how low do you go to hire people to substitute or cross over? We have all heard stories of mishaps. Blue collar workers are in terribly short supply, and safety is threatened, because some of the labor “imports” are not sufficiently experienced technically or socially.