Defusing the talent time bomb

Already facing a demographic challenge, the oil industry has reduced headcount in an attempt to create more efficient operations. But what is the true cost of letting the best talent go, both today and in the future? And how can organisations protect themselves against the talent time bomb? It has long been recognised that the oil and gas industry is facing what optimists call a demographic gap, and what pessimists describe as a talent time bomb. Even before the squeeze on resources caused by the precipitous drop in the price of oil, an ageing cohort of expertise was leaving the industry, hard-won pension in hand, and with little sign of replacement in sight.

Accelerated departures

The United States Bureau of Labor Statistics reports that in 2015 the average age of an oil and gas worker was 41. With the average age of workers on the rise, the volume of engineers, technicians and professionals retiring out of the industry will widen the already-large gap in qualified talent needed to fill essential roles. Individuals with five to ten years’ experience are expected to be of greatest demand.

Of course, in the past couple of years, the exodus of talent has been accelerated by cost-cutting and efficiency drives in the face of low oil prices and unsustainable break-even points. Airswift estimates that since March 2015, more than 290 000 jobs have been lost worldwide, with many employees opting for early retirement packages where offered.

The North Sea, Canada, Latin America and West Africa are all hypersensitive to rising prices, and all have been hit hard - although every region has been affected in some way. The cuts have primarily been at the operator and service company level in the upstream sector, whereas downstream companies that are more sheltered from the direct impact of oil prices are in a better position to sustain current levels of headcount, although by no means immune.

The Middle East has also been sheltered from the direct impact of the lower-for-longer environment. But even here, cost optimisation has now come to the fore. The region’s major players have joined their global counterparts in balancing along the fine line between cost optimisation and talent retention.

Expendable experience

Initial stopgap reductions of the contingent workforce are now extending deeper into organisations where some of the most skilled and experienced, and consequently most expensive, individuals have become expendable. Airswift has seen examples of Middle East operators and other participants across the value chain offloading talent with more than ten years’ experience on specific assets or projects.

The consequences of the growing talent shortage have already been seen in a number of ways. In a recent report, Marsh, a major insurance broker and risk adviser, highlighted the link between low oil prices and an increase in major incidents. In the short term, this lower-for-longer environment is giving rise to a new dynamic between people, safety and cost, which needs to be carefully managed to ensure the safe and sustainable operation of oil and gas assets.

In the long-term, there could be even greater consequences for the industry. With so many individuals with oil and gas expertise now looking for work, sectors such as metals, mining and infrastructure can, for the first time, afford some of the most skilled and experienced talent in the world.

Talent transfer

For individuals who can transfer their skills to sectors that offer greater stability than the oil and gas industry, this is not necessarily bad news. Project management and engineering talent is moving into other project-related sectors for example mining, nuclear power, renewables, downstream and chemicals as well as infrastructure.

Similar moves are common when it comes to quality, health, safety and environment (QHSE). Here, the experience of working in one of the most hazardous environments in the world is a valuable badge of honour that is extremely attractive commodity to companies in other sectors. The rail industry, for example, is a key employer of safety specialists who have been let go from the oilfields.

It is too soon to tell if the oil and gas industry has permanently lost this talent, but when the price of oil recovers there may be a long-term, more pronounced talent shortage. There is the growing possibility that the oil and gas sector will face an even greater skills shortage than pre-recession levels. And if companies are unable to fill essential positions, then the risk to their business is significant, even as the industry recovers from its current slump.

Long-term effects

It is almost impossible to calculate what this loss of talent will cost the industry. Oil and gas projects are bigger, more complex and are more resource-intensive than ever before. This requires a large, international and scalable employee base with the right skills and experience to support projects through to completion. If the right people aren’t available, these projects will be delayed costing operators potentially millions of dollars. Before the economic downturn in the late 2000s, the estimated average cost of an unfilled vacancy in the oil and gas sector was as high as US$30 000 per month. Taking multiple regions into account, the scale of the issue becomes apparent.

This is not simply a matter of economics. If the loss of QSHE professionals is permanent, then the safety and cost conundrum highlighted in the Marsh report will continue long after the oil price picks up and margins become more forgiving.

As the price of oil drifts upwards from the US$50 mark, the industry can realistically expect more projects to come online and hiring activity to increase once more. Before the downturn, the shortage of talent made it difficult for companies to find and retain top talent. As the price of oil declined, more talent became available and so power shifted back to organisations and the market transformed from one driven by candidates to one driven by hirers. Once the market starts to recover, that balance can tip very quickly in the other direction and the talent shortage we saw prior to the downturn will return in full force.

Changing dynamics

The tipping point could arrive sooner than expected. As Saudi Arabia’s recently-appointed oil minister, Khalid Al-Falih, has made clear, the kingdom’s oil glut is over. In a recent interview he reasserted Saudi Arabia’s commitment to its oil economy, and his firm expectations that the oil market will grow in absolute terms in the next two decades, despite changes to the global energy mix. It seems the tug-of-war with US shale could be over.

Organisations may feel pressured to take proactive action to mitigate the risks of losing vital skills and expertise. The first priority has to be retention of top performers. This is crucial to ensure that each organisation has the right resources in place to train the next generation of talent and ensure knowledge transfer.

The second is to ensure that knowledge is effectively transferred across all levels of the company, both inside and outside formal training programmes. This can include effective mentoring schemes, job shadowing, or other structures that encourage the organic transfer of knowledge.

New flexibility

For many firms, this is also a time to re-think what it means to be flexible when it comes to workforce management. The industry has long been dependent on flexible workforces to fill gaps quickly and efficiently as and when they occur. But the inherent advantage of this flexible workforce now comes at a cost that is proving unsustainable.

Initially, the instability and inherent risk of contingent and flexible contracts meant contractors could command higher and higher remuneration packages. Although that risk element is much lower in an industry stretched for resources, the remuneration remains the same. It is also too easy to find examples of the ‘permanent’ contractor: the temporary consultant who has worked on a contract basis for the same company for more than a decade, securing a much higher salary than the equivalent permanent hires. Many are prepared to be mobile, and so slip under the radar of co-employment legislation where it exists.

Thinking smarter

Flexibility therefore needs to get smarter and, almost inevitably, operate on a global scale rather than on a series of local operations. Before recruiting new people, organisations should develop the flexibility to identify where key personnel and key skill-sets already reside within the business and then develop the means to make them available where they are most needed.

Mobilisation services that support the movement of key personnel from one essential location to another in a quick, compliant and pain-free manner therefore form part of the solution.

But there is no denying that the upturn will demand a return to recruitment. The traditional model where hundreds of suppliers are managed on an ad hoc basis lacks both transparency and cost-effectiveness.

However, the industry is seeing an increasing demand for outsourced services: whether that is managing one aspect of a hiring practice through a controlled list of suppliers, or the wholesale outsourcing of recruitment processes (RPO). Proven to save costs and deliver efficiencies throughout global recruitment practice, they help streamline all recruitment activity, eliminate the many incidents of duplication, and deliver greater control over HR budgets and the quality of recruits.

Information technology

Perhaps the biggest change in recruitment practices will be in the use of advanced information technologies as a solution to both the flexibility and the mobility problems. One of the biggest challenges associated with a middle-aged workforce is the increasing reluctance to travel the world at the drop of a hat – particularly to regions that are not deemed to be family-friendly.

However, the digital transformation in upstream operations can address this challenge, enabling talent to collaborate without travel, providing mentoring and guidance from diverse locations, and optimising the value to be gained from retaining experienced individuals. Collaborative platforms, unified communications, augmented reality and real-time sharing tools all enable organisations to tap into decades of knowledge without a helicopter ride in sight.

Not only does this make knowledge sharing more efficient, but by making working life less disruptive to personal life it could also delay the point at which experience leaves the organisation. It could even encourage some of those early retirees back to the industry on almost a part-time basis: after all providing armchair expertise is significantly more attractive than flying into remote regions that are typically in need of the greatest specialist knowledge.

However they choose to resolve the problem of retention and recruitment, it is absolutely crucial that all organisations have the right resources in place to develop the next generation of skilled individuals. If knowledge transfer does not take place internally, then organisations will be facing off in an existential competition for the most experienced – and increasingly rare – talent.

Read the article online at: https://www.oilfieldtechnology.com/special-reports/26102016/defusing-the-talent-time-bomb/