The energy sector is evolving and accepting best practices from other industries with an overall focus on efficiency and continuous improvements. The Human Resources Department plays a critical role in driving these internal activities as well as the growth and expansion of an organization.
Despite the intrinsic volatile nature of this industry, HR function has a deep implication to steer the overall productivity of the business. Overcoming the various challenges, ensuring sound HR practices and strategies can thus develop strong talent culture and a more resilient organization.
Recruitment: Attracting and retaining Talents in a unique sector
The energy industry is unlike any other. It is primarily a field-based industry, and it requires a mental attitude that cannot be compared to the practice of a regular desk job. The jobs demand a combination of mental skills and physical resilience that would sustain the employees even in most difficult working environments. In spite of fantastic financial incentives, the hostile work environment and the inherent risks of the job might prove to be the key roadblock for the HR team to promote job satisfaction.
One of the trickiest challenges for HR executives would be retaining their top talents and finding suitable replacements in case of attrition. The company makes a considerable investment to train and groom the recruits to become subject matter experts in due course of time. Thus the HR team needs a long-term and sustainable approach towards managing the work-life balance of these employees, provide timely rewards & recognitions, and bring in the sense of empowerment by upskilling them.
Dynamic Industry Requirements
The energy industry is highly competitive and its working depends on many extraneous factors. Therefore, the industry has a dynamic approach inbuilt into its management practices.
The HR executives usually find it difficult to evolve a long-term framework because of the changes being effected in the management strategies of the industry. This not only greatly affects the delivery but also makes them apprehensive about following long-time HR policies.
Information technology has now become an integral part of the industry and has opened up many new job profiles, such as data analysts, automation engineers, software engineers etc. The HR strategy should dynamically change to support the technological advancement in each business groups and develop leaders who can translate business needs into digital solutions.
Diversity: Maintaining gender balance and multi-cultural workforce
Professionals from different corners of the world come to work in foreign countries, sometimes in remote and isolated locations. Working in these locations and away from family for long periods of time has an effect on the motivation levels. Adapting local culture, climate and food sometimes pose a challenge for these employees. Mid-career retirement is not a new thing for employees of both genders.
The HR has to drive interactive sessions, motivational work groups, and discussion forums to enable early detection of demotivation and prompt resolution.
Capacity building at new sites:
Any new oil and gas project is a huge commitment of capital and resources. Human resources managers are under huge pressure to make a project fully operational as the talent search for a new project is even more difficult than the established ones.
Apart from identifying suitable employees, the HR managers are also responsible for creating a suitable work environment for every employee recruited for the new project. This is an absolutely critical factor for the long-term growth and success of the new site.
The HR function is key to helping organizations in the dynamic oil and gas sector survive and even thrive amidst downturns. More importantly, they must ensure that the organizations are well positioned for the turnaround.
While the harsh on-site terrains of oil and gas industry set a huge challenge for the HR executives to keep the employee motivation level high, there are several rewarding experiences for an employee to be lured into this industry.
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U.S. crude oil production in the U.S. Federal Gulf of Mexico (GOM) averaged 1.8 million barrels per day (b/d) in 2018, setting a new annual record. The U.S. Energy Information Administration (EIA) expects oil production in the GOM to set new production records in 2019 and in 2020, even after accounting for shut-ins related to Hurricane Barry in July 2019 and including forecasted adjustments for hurricane-related shut-ins for the remainder of 2019 and for 2020.
Based on EIA’s latest Short-Term Energy Outlook’s (STEO) expected production levels at new and existing fields, annual crude oil production in the GOM will increase to an average of 1.9 million b/d in 2019 and 2.0 million b/d in 2020. However, even with this level of growth, projected GOM crude oil production will account for a smaller share of the U.S. total. EIA expects the GOM to account for 15% of total U.S. crude oil production in 2019 and in 2020, compared with 23% of total U.S. crude oil production in 2011, as onshore production growth continues to outpace offshore production growth.
In 2019, crude oil production in the GOM fell from 1.9 million b/d in June to 1.6 million b/d in July because some production platforms were evacuated in anticipation of Hurricane Barry. This disruption was resolved relatively quickly, and no disruptions caused by Hurricane Barry remain. Although final data are not yet available, EIA estimates GOM crude oil production reached 2.0 million b/d in August 2019.
Producers expect eight new projects to come online in 2019 and four more in 2020. EIA expects these projects to contribute about 44,000 b/d in 2019 and about 190,000 b/d in 2020 as projects ramp up production. Uncertainties in oil markets affect long-term planning and operations in the GOM, and the timelines of future projects may change accordingly.
Source: Rystad Energy
Because of the amount of time needed to discover and develop large offshore projects, oil production in the GOM is less sensitive to short-term oil price movements than onshore production in the Lower 48 states. In 2015 and early 2016, decreasing profit margins and reduced expectations for a quick oil price recovery prompted many GOM operators to reconsider future exploration spending and to restructure or delay drilling rig contracts, causing average monthly rig counts to decline through 2018.
Crude oil price increases in 2017 and 2018 relative to lows in 2015 and 2016 have not yet had a significant effect on operations in the GOM, but they have the potential to contribute to increasing rig counts and field discoveries in the coming years. Unlike onshore operations, falling rig counts do not affect current production levels, but instead they affect the discovery of future fields and the start-up of new projects.
Source: U.S. Energy Information Administration, Monthly Refinery Report
The API gravity of crude oil input to U.S. refineries has generally increased, or gotten lighter, since 2011 because of changes in domestic production and imports. Regionally, refinery crude slates—or the mix of crude oil grades that a refinery is processing—have become lighter in the East Coast, Gulf Coast, and West Coast regions, and they have become slightly heavier in the Midwest and Rocky Mountain regions.
API gravity is measured as the inverse of the density of a petroleum liquid relative to water. The higher the API gravity, the lower the density of the petroleum liquid, so light oils have high API gravities. Crude oil with an API gravity greater than 38 degrees is generally considered light crude oil; crude oil with an API gravity of 22 degrees or below is considered heavy crude oil.
The crude slate processed in refineries situated along the Gulf Coast—the region with the most refining capacity in the United States—has had the largest increase in API gravity, increasing from an average of 30.0 degrees in 2011 to an average of 32.6 degrees in 2018. The West Coast had the heaviest crude slate in 2018 at 28.2 degrees, and the East Coast had the lightest of the three regions at 34.8 degrees.
Production of increasingly lighter crude oil in the United States has contributed to the overall lightening of the crude oil slate for U.S. refiners. The fastest-growing category of domestic production has been crude oil with an API gravity greater than 40 degrees, according to data in the U.S. Energy Information Administration’s (EIA) Monthly Crude Oil and Natural Gas Production Report.
Since 2015, when EIA began collecting crude oil production data by API gravity, light crude oil production in the Lower 48 states has grown from an annual average of 4.6 million barrels per day (b/d) to 6.4 million b/d in the first seven months of 2019.
Source: U.S. Energy Information Administration, Monthly Crude Oil and Natural Gas Production Report
When setting crude oil slates, refiners consider logistical constraints and the cost of transportation, as well as their unique refinery configuration. For example, nearly all (more than 99% in 2018) crude oil imports to the Midwest and the Rocky Mountain regions come from Canada because of geographic proximity and existing pipeline and rail infrastructure between these regions.
Crude oil imports from Canada, which consist of mostly heavy crude oil, have increased by 67% since 2011 because of increased Canadian production. Crude oil imports from Canada have accounted for a greater share of refinery inputs in the Midwest and Rocky Mountain regions, leading to heavier refinery crude slates in these regions.
By comparison, crude oil production in Texas tends to be lighter: Texas accounted for half of crude oil production above 40 degrees API in the United States in 2018. The share of domestic crude oil in the Gulf Coast refinery crude oil slate increased from 36% in 2011 to 70% in 2018. As a result, the change in the average API gravity of crude oil processed in refineries in the Gulf Coast region was the largest increase among all regions in the United States during that period.
East Coast refineries have three ways to receive crude oil shipments, depending on which are more economical: by rail from the Midwest, by coastwise-compliant (Jones Act) tankers from the Gulf Coast, or by importing. From 2011 to 2018, the share of imported crude oil in the East Coast region decreased from 95% to 81% as the share of domestic crude oil inputs increased. Conversely, the share of imported crude oil at West Coast refineries increased from 46% in 2011 to 51% in 2018.
Headline crude prices for the week beginning 7 October 2019 – Brent: US$58/b; WTI: US$52/b
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