The oil and gas industry, after a brief post-recession dip, again is in the midst of accelerated global growth. This resurgence reignites a debate that often is lost during recessions: the importance of technical talent on production growth. Since 2004, Schlumberger Business Consulting (SBC), the management consulting arm, has studied the global supply and demand of petrotechnical professionals (PTPs) to highlight human resource best practices and to gain insights into an often misunderstood element of the global oil and gas equation – talent needs.

The survey

The annual survey of PTPs (which covers geosciences and petroleum engineering) has become a reference point for E&P executives seeking to understand industry trends and learn practical talent management strategies. Since its inception, the survey has revealed several realities:

The late-2000s global economic downturn prompted international oil companies (IOCs) to decrease recruitment targets more aggressively than national oil companies (NOCs); The industry has begun to address the challenge of an aging workforce; and Coaching has the potential to materially reduce PTP time-to-autonomy and thus the potential to accelerate competency development.

This year’s survey reveals two hard truths: (1) technical talent plays a strategically important role in the oil and gas business; and (2) a large demographical shift will materially reduce the number of petrotechnical professionals.

The 2010 Benchmark uncovers a strong correlation between PTP intensity and production growth. PTP intensity is defined as the number of PTPs per 1,000 operated boe/d produced versus operated production compound annual growth rate. The correlation has an R-squared of 0.7 and is based on a sample of 11 IOCs, which includes data from Western independents and majors for 2005-2010. (Source: “2010 SBC O&G HR Benchmark”)

The strategic importance of talent

One of the biggest risks facing the industry is a potential future lack of qualified technical talent. Oil and gas companies have long felt the effect of lacking technical talent, yet few have recognized the issue as a strategic one that impacts corporate growth. Few tangible, quantifiable facts have supported this notion. The relationship between the industry’s technical talent and future production growth never has been well understood. To address this uncertainty, the “2010 SBC O&G HR Benchmark” has developed the concept of PTP intensity – the relationship between “PTPs-per-barrel-produced” versus production growth. The PTP intensity concept enables a better quantification of the impact of technical talent on the industry.

The 2010 Benchmark uncovers a strong correlation between PTP intensity and operated production growth. Faster-growing companies have higher PTP intensities than other companies – high PTP intensities indicate a company employs more PTPs/bbl of oil produced than companies with lower PTP intensities.

The 2010 Benchmark segments companies into three peer groups – Western independents, majors, and NOCs – and highlights a striking similarity in the PTP intensities of companies within these peer groups. Majors and Western independents have the highest PTP intensity, although their experienced PTP intensity is projected to decline over the next five years. NOCs have the lowest PTP intensity but will experience the fastest PTP intensity growth.

PTP intensity analysis shows PTP management is not merely an organization issue – it is a strategically important issue that impacts corporate growth. The analysis also highlights talent management challenges for Western independents and majors, which face declining PTP intensities, and NOCs, which must sustainably manage rapid PTP intensity growth

The looming talent shortage

Oil price spikes and subsequent price collapses created a demographical gap in the oil and gas workforce. While rising prices initially attracted ambitious PTP students to study the profession, price collapses and industry downsizing eventually diverted talent to other professions. There is consensus in the industry that the Big Crew Change expected in the next five to 10 years will create a significant change in industry personnel. Oil and gas company employees generally retire between ages 55 and 60. The average age of current employees is in the late-40s to early-50s. The 2010 Benchmark shows the Big Crew Change is real and is happening now. This personnel shift will lead to a loss of 5,000 experienced PTPs by 2014.

Oil and gas supply is expected to grow to meet the needs of fast-growing emerging markets like China. To ensure production growth is not disrupted, the industry will have to ensure the handover from retiring PTPs to the new generation occurs as effectively and smoothly as possible.

While Western independents and majors will have higher PTP intensities from 2010 to 2015, NOCs will experience rapid PTP intensity growth versus a general decline for Western independents and majors. (“Experienced PTPs” refer to autonomous PTPs able to make original technical decisions. “All PTPs” includes young PTPs who have not reached autonomy.)

Positive signposts

Despite the imminent talent shortage, positive signposts are appearing.

First, demand for graduates is recovering and outpacing the pessimistic forecasts of a year ago. 2011 PTP recruitment targets are 15% higher than levels planned in 2009.

Second, universities contain a previously untapped talent resource – females. Female PTP numbers at companies have increased since 2006. At NOCs, female ratios rose to 27% from 19% (geosciences) and to 17% from 15% (petroleum engineering). At independents, similar increases have been observed.

Finally, mid-career PTP demand is soaring – primarily driven by the need for expertise in unconventional oil and gas (IOCs) and enhanced oil recovery (NOCs). These events signal that the industry is taking action – but a new landscape is emerging.

New landscape, new mindset

The market for experienced PTPs will tighten, resulting in staff poaching, salary escalation, and higher attrition. These issues will have serious consequences on projects and production capacity. 2010 Benchmark respondents reported that staffing issues will delay projects and may drive increased risk appetite. Mitigation approaches vary: independents rely on technology to boost PTP productivity, majors standardize projects, and NOCs outsource non-core competencies.

Compounding the looming shortage of PTP talent is a shift toward more complex reservoirs and a more stringent regulatory environment post-Macondo. In this context, companies need to adapt quickly to manage their talent or risk losing their competitive advantage. Companies need to elevate talent management from merely an organizational issue to a strategic one that can have major implications on corporate growth.

The Big Crew Change is happening now. The graph displays the percentage of PTPs per age category globally. The retirement rate is at 20% for 55-59 year-olds, 90% for 60-64 year-olds, and 100% for 65+ year-olds. People are expected to leave the industry at a rate of 1.4%.

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