FINANCIAL TIMES: Depleted talent reserves threaten oil companies: “Royal Dutch/Shell, hoping to recruit 1,000 engineers this year to help it escape its reserves crisis, has recently returned to the university careers circuit after abandoning it some years ago.” (ShellNews.net) 29 March 05
By Doug Cameron, James Boxell and Liam Denning
As the world's biggest listed oil companies grapple with the task of replacing their dwindling reserves over the next decade, concern has focused on investment, the challenge from Chinese and Indian rivals and the lack of access to the Middle East.
But one crucial worry is often overlooked: the dearth of engineering talent. The industry is struggling to replace an ageing workforce and attract smart young graduates to turn round its poor exploration record.
The average age of oilfield engineers has risen to 48 and above 50 in the US and there are not enough recruits to sustain the $200bn planned investment in expansion over the next 15 years. “While the ageing workforce has been an issue for some time, it has got to the stage where it is an acute problem,” says Terrence Gee, a partner at Accenture, the management consultancy.
Jim Hackett, chief executive of Anadarko, one of the biggest US independent oil groups, says: “Those [companies] who solve this internal problem over the next five years are the ones who are going to win.”
The talent gap has prompted a charm offensive across university campuses. Royal Dutch/Shell, hoping to recruit 1,000 engineers this year to help it escape its reserves crisis, has recently returned to the university careers circuit after abandoning it some years ago.
Companies such as Shell, BP and ExxonMobil have stepped up their traditional hard-sell tactics such as milk rounds and prize raffles of mountain bikes. They 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 including the occasional curry.
Terry Dray, careers officer at the University of Manchester, one of Britain's leading centres for the study of engineering, says the approach has had an immediate effect on increasing recruitment.
However, there is much to do to rebuild the supply of engineering graduates. By 2002, before the recent modest improvement, the flow of potential recruits had halved from the last peak in 1983.
The merger boom at the end of the 1990s, which coincided with depressed oil prices, saw hundreds of thousands of people quit the industry. Neil McMahon, analyst at Sanford Bernstein, believes companies neglected hiring to pursue cost savings, just as the appeal of the oil business was waning.
Beyond the campus efforts, the industry's short-term response has been an increase in poaching, with the biggest companies reversing the traditional trickle-down of staff to the independents.
The big companies have less trouble attracting staff because of their high profile and training programmes, but still face challenges.
Lee Raymond, ExxonMobil's chairman and chief executive, claims he has more than enough engineers to sustain long-term developments. But many are sceptical. “This is one industry issue I really don't believe Exxon can be immune from,” says Mr McMahon.
Some companies have turned to new technology to minimise the number of skilled staff they require. The “digital oilfield” is allowing projects to be operated with fewer engineers on the ground.
Multinationals, struggling to find UK and US recruits for overseas postings in oil-rich but turbulent countries such as Nigeria, are also seeking to increase local staff numbers often under local pressure rather than relying on expatriates.
Many are also seeking to retain staff beyond the normal retirement age, though this is amplifying wage inflation in a business already struggling with costs. A survey of 3,300 international petroleum engineers carried out by Gallup for the Society of Petroleum Engineers found average incomes rose by 5.5 per cent in 2004.
The average total package, including benefits, was $127,000, while those with less than a decade of experience earned on average more than $75,000. “Young people are going to get paid more when they come into this industry,” says Mark Rubin, executive director at the Society of Petroleum Engineers.
The search for talent is influencing companies' acquisition strategies and approach to overseas markets. One attraction of BP's joint venture with Russia's TNK, for example, was the prospect of gaining access to Russian engineers.
The issue is also giving the west one more reason to worry about the rise of China as an oil power. Rich Ruggiero at Gaffney, Cline & Associates, a petroleum industry consultancy, says China will produce as many as 500,000 energy graduates between now and 2010.
Western oil companies may hope this will provide a rich new talent pool for them to tap. But the fear will be it gives China's state-owned oil companies yet another advantage.
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