In the oil and gas
industry, we have long known that the right people, with the right skills and
tools, will bring about the highest return on investment in any critical
project. But what happens when you don’t have those people with the right
skills to helm those projects?
The oil price fell below $30 in January and this was followed by an almost continuous stream of news relating to job losses, decreasing profits and cost cutting at every corner. The International Energy Agency reported that any recovery in the oil and gas industry will be short lived, and the recent “rise in prices was a ‘false dawn’”.
One key consequence of this continued downturn has been significant cuts of “non-regulatory” or “non-essential’ training by many oil companies. Ironically these “non-essential’ training do play a pivotal role in the continued survival of the industry, and vital for its safe operations. So what happens to an industry that neglects vital skills development? This is hidden element of the current cost cutting campaigns.
Back in 2011 Schlumberger Business Consulting conducted a survey exploring future skills shortages in the hydrocarbon industry. It found that “22,000 senior petrochemical professionals would quit the industry by 2015” and that the recruitment of graduates may offset staff levels but would not fill the experience gap. It later then noted that by 2016 the absence of experienced professionals within the oil industry would reach 20% of the talent pool.
These finding are four years old, and the downturn wasn’t even considered as a mitigating factor in the study. Since then, not only have thousands of jobs been cut, but recruitment budgets have also been slashed and the extended downturn has put graduates off this struggling industry, only worsening the problem.
When the inevitable upturn in the oil price and wider sector does take place, oil companies will find themselves with a potentially vast skills gap. Desperate to increase production with higher prices to make up for lost revenue, many firms are likely to push ahead with under-skilled staff. In doing so, these firms will not just face inefficiencies but potentially catastrophic safety and environmental incidents affecting profits and lives.
The industry has a long history of overlooking issues related to its talent management. Long-term skills development planning has never really been adhered to when oil prices collapse. Most oil companies have been short sighted, pleasing only their masters in the stock market.
Oil company bosses need to focus on talent as much as they did when the price of oil was over $70 – 80per barrel. Granted that we may not see another $100per barrel days in the near future however when oil prices return to its “normal” trajectory, the problem will only worsen. This careless neglect of sustained skills development, will lead to significant shortages, inflated salaries, the overuse of third-party contractors and widespread poaching. Current evidence also suggests that talents that have left the oil sector may not necessary return, unless the price is right. And it will be a high price to pay.
But is this all the responsibility of the oil companies or is there more that could be done by regulators, interest groups, long term oil investors or even the employee unions?
The UK’s North Sea oil and gas fields are feeling the full weight of the crisis due to their high staff and production costs. An estimated 65,000 jobs have been lost across the UK oil industry and further 10,000 are at risk compounded by the recent Brexit mess.
What is a probable
Consider this. The Engineering Construction Industry Training Board legally requires that companies on their register pay a mandatory levy at the start of each year. The levy can only be claimed back through training, forcing firms to conduct training or lose their levy.
this might not be enough to solve the problem entirely but they are certainly
in the right direction towards a more sustainable and competent workforce in
the long run. Be it companies themselves or by regulating bodies, it is vital
that the oil industry understands that by equipping staff with the knowledge and
practical skills, it will keep their business on track in the long term. It can
quite literally save companies millions from overspend, inefficiencies and
What are your thoughts about probable solutions that can resolve the continuing decline of skills and experience in the current oil crisis?
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Headline crude prices for the week beginning 11 March 2019 – Brent: US$66/b; WTI: US$56/b
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Midstream & Downstream
GEO ExPro Vol. 16, No. 1 was published on 4th March 2019 bringing light to the latest science and technology activity in the global geoscience community within the oil, gas and energy sector.
This issue focuses on new technologies available to the oil and gas industry and how they can be adapted to improve hydrocarbon exploration workflows and understanding around the world. The latest issue of GEO ExPro magazine also covers current training methods for educating geoscientists, with articles highlighting the essential pre-drill ‘toolbox’ and how we can harness virtual reality to bring world class geological locations to the classroom.
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In 2017, Norway’s Government Pension Fund Global – also known as the Oil Fund – proposed a complete divestment of oil and gas shares from its massive portfolio. Last week, the Norwegian government partially approved that request, allowing the Fund to exclude 134 upstream companies from the wealth fund. Players like Anadarko Petroleum, Chesapeake Energy, CNOOC, Premier Oil, Soco International and Tullow Oil will now no longer receive any investment from the Fund. That might seem like an inconsequential move, but it isn’t. With over US$1 trillion in assets – the Fund is the largest sovereign wealth fund in the world – it is a major market-shifting move.
Estimates suggest that the government directive will require the Oil Fund to sell some US$7.5 billion in stocks over an undefined period. Shares in the affected companies plunged after the announcement. The reaction is understandable. The Oil Fund holds over 1.3% of all global stocks and shares, including 2.3% of all European stocks. It holds stakes as large as of 2.4% of Royal Dutch Shell and 2.3% of BP, and has long been seen as a major investor and stabilising force in the energy sector.
It is this impression that the Fund is trying to change. Established in 1990 to invest surplus revenues of the booming Norwegian petroleum sector, prudent management has seen its value grow to some US$200,000 per Norwegian citizen today. Its value exceeds all other sovereign wealth funds, including those of China and Singapore. Energy shares – specifically oil and gas firms – have long been a major target for investment due to high returns and bumper dividends. But in 2017, the Fund recommended phasing out oil exploration from its ‘investment universe’. At the time, this was interpreted as yielding to pressure from environmental lobbies, but the Fund has made it clear that the move is for economic reasons.
Put simply, the Fund wants to move away from ‘putting all its eggs in one basket’. Income from Norway’s vast upstream industry – it is the largest producing country in Western Europe – funds the country’s welfare state and pays into the Fund. It has ethical standards – avoiding, for example, investment in tobacco firms – but has concluded that devoting a significant amount of its assets to oil and gas savings presents a double risk. During the good times, when crude prices are high and energy stocks booming, it is a boon. But during a downturn or a crash, it is a major risk. With typical Scandinavian restraint and prudence, the Fund has decided that it is best to minimise that risk by pouring its money into areas that run counter-cyclical to the energy industry.
However, the retreat is just partial. Exempt from the divestment will be oil and gas firms with significant renewable energy divisions – which include supermajors like Shell, BP and Total. This is touted as allowing the Fund to ride the crest of the renewable energy wave, but also manages to neatly fit into the image that Norway wants to project: balancing a major industry with being a responsible environmental steward. It’s the same reason why Equinor – in which the Fund holds a 67% stake – changed its name from Statoil, to project a broader spectrum of business away from oil into emerging energies like wind and solar. Because, as the Fund’s objective states, one day the oil will run out. But its value will carry on for future generations.
The Norway Oil Fund in a Nutshell