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During the years leading up to the financial crisis of200809, growing skills shortages were one of the mainconcerns of the oil and gas industry. A 2007 study byCambridge Energy Research Associates estimated a short-age of 55,500 engineers and project management staff todeliver the more than 400 major projects that were then

scheduled to come on stream over the next 5 years. A2008 Ernst & Young survey showed that nearly 90% ofsenior human resources executives at 22 top internationaloil and gas companies thought the industry faced a majortalent void and they called the problem one of the top fivebusiness issues facing their companies. Several researchinstitutions even ventured to calculate the cost of skillsshortages for the industry, and one of the more conserva-tive studies estimated that the US oil and gas industry

alone lost between USD 4 and 5 billion in 2006 as a resultof the skills shortage.

A number of oil and gas executives argued that ifnothing is done, there would be a slowdown in reservereplacements, a capacity shut-in, and a major increasein operating costs within the next 5 to 10 years. Already,

during 2007 and early 2008, reports were coming in ofproject delays around the world because of the lack ofskilled personnel.

We all know that that situation has changed since then.Crude oil prices plunged from more than USD 140/bbl tounder USD 40/bbl as the global recession reduced energydemand in the importing countries. And the demand forhigher-skilled workers dropped as production declined andproducers cut capital expenditure on exploration and newproduction facilities. The outcome is that many companiesand governments, which had developed plans to invest inhuman resources to tackle the skills shortage, have decidedto drop these or scale them down significantly.

This raises an important question: Once the currentrecession is over, and the industry gears up to meetgrowing energy demand, will it again be faced with skillsshortages restricting production? Clearly, smaller energycompanies with limited access to capital have feweroptions. But the larger ones with more capital, does itmake sense they drop human resources from their invest-ment plans?

Several large companies are already positioning them-selves for the recovery. They have maintained or evenincreased capital expenditures to be able to meet higherdemand in the future. But what we have seen so far is thatthese plans only cover capital investment in productionand exploration. So far we have not seen any major plan

to address the potential of future skills shortages once theindustry gets ready to meet higher energy demands. In ourview, the industry risks paying a high price if it ignores thethreat of skills shortages limiting future production.

How to Avoid Skills ShortagesAfter RecoveryThe Centre de Recherches des Enterprises et Socitsin Geneva recently completed a review of the humanresource situation in the global oil and gas industry basedon numerous studies. This initiative was funded by Afren,the Nigerian oil company, and sponsored by the UnitedNations Institute for Training and Research.

Whatever Happened to the Skills

Crisis in the Oil and Gas Industry?Peter Peek, Partner, Global Labour Monitor, and Patrick Gants, Secretary-General,

Centre de Recherches des Entreprises et Socits

Peter Peek is a Partner for Global Labour Monitorand the Research Coordinator for Centre de Recherches

des Entreprises et Socits (CRES). He has taughtat various universities in the US before joining theInternational Labour Office in Geneva, Switzerlandwhere, among other assignments, he served as directorof the regional office for Southern African countries.With Global Labour Monitor, Peek specializes in energy,human resources, and local content issues and servesas a consultant to private enterprises and internationalorganizations. He received a BA degree in economics atthe Nijenrode Business University in The Netherlandsand completed his PhD studies in economics at theUniversity of Southern California.

Patrick Gants is Secretary-General of the CRES inGeneva, Switzerland. CRES is a foundation that spe-cializes in energy policies and has acted as an adviserto governments (Angola, Congo, and Gabon), to localgovernment (city of Moscow), and to scientific institu-tions (Russian Academy of Sciences). Gants has beena consultant for marketing, assessment of political risk,and business organization. He has also spent 15 years inthe oil industry, primarily in human resources, economicplanning, and management positions in Italy and theCongo. He is a graduate of the University of Paris II andthe University of Paris-Dauphine, where he received aPhD in management.

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The central finding of this study was that the skillsshortages that had built up until the recent global reces-sion were not simply the result of growing energy demandin China and India and other emerging economies.Another cause was the decreasing supply of trained engi-neers, geophysicists, and other high-skilled workers. Thestudy proposed a three-point global plan to ensure thatsupply meets demand.

More Training. There is an urgent need to expand train-ing programs in Europe and the US. The number of oil-and-gas-related courses has declined substantially overthe years, and companies can play a useful role in linkingwith universities and other learning institutions to reversethat trend.

But training also needs to expand in low-income coun-tries, particularly in those with oil and gas reserves. Goingthat road is often seen as too big a challenge because ofthe lack of an adequate infrastructure and scarce teachingpersonnel. But the counter-argument is that the risk ofanother skills crisis is too important to ignore the pos-

sibilities of offering training in countries with huge popu-lations of young people eager to have access to trainingand jobs. Recently, a few successful initiatives have beendeveloped to establish new centers of teaching in low-income countries, often in close collaboration with oilcompanies, universities, and training institutions of high-income countries. It is essential that more such initiativesare undertaken.

Increasing the number of training courses within com-panies is also a requirement. One recent survey foundthat more than half of the companies interviewed felt thatimproved in-house training is more effective than keepingolder workers beyond their retirement.

Attracting More Students. The number of studentsin petroleum-related courses in the US and Europe hasdeclined significantly over the years. As quite a numberof observers have pointed out, there are some funda-mental differences in priorities and preferences betweenthe generation of professionals now exiting the industryand the so-called Generation Y. This generation is thepopulation in western industrialized countries that cur-rently range in age from recent university graduates tomiddle-school students (generally, birth years from 1982to 1993). Generation Y tends to aim for long-term careerdevelopment, variety of experiences, a sense of purposeand meaning in their work, open social networks, and a

favorable work/life balance. Oil and gas companies needto address these issues, otherwise it will fail to reachthis generation.

Deloitte consultants has proposed a strategy for gettingyoung people involved in the Develop-Deploy-ConnectTalent Management framework. Companies developprospective young workers by providing them with activelearning opportunities; deploy them by designing effec-tive organizational environments; and connect them bycreating infrastructure to foster collaboration.

The strategy should not be seen as a tactic to producequick fixes, but as something that companies need toincorporate into the underlying values of their organi-

zational culture. It is not only that the industry needs todo work to change the image of the industry among theyoung generation. It also needs to adapt the corporate cul-ture, job content, and work methods more to the interestsand concern of this generation. The two should go handin hand.

Revamping Recruitment. Besides more training, there

is also a need to overhaul recruitment procedures.Traditionally, the industry has sought to hire primar-ily males from either the US or Europe with degrees inpetroleum engineering and related disciplines, and withat least several years of experience. This pattern now hasto be broken. The oil boom before the 200809 reces-sion already saw more recruitment of women, of recentgraduates with little or no experience, and of people withdegrees in other disciplines. There was also an increase inrecruitment from countries other than the US and Europe.But the numbers involved are small; nonconventionalrecruitment can be expanded considerably.

The industry can reduce its skills shortages with a strat-

egy to draw more professional women into employment.Developing such a strategy will not be difficult given thatwomen constitute a significant proportion of studentsenrolled in engineering courses. The number of women inengineering is high in such countries as Egypt, Indonesia,Libya, Malaysia, and Turkey. In some Asian countries, theproportion of women and men is approximately equal.At Kuwait University, female students now make up themajority of students working toward petroleum engineer-ing degrees.

Another means of reducing the shortage is to retain staffbeyond the normal retirement age. Early retirement canbe limited, retirement dates can be postponed, or retiredemployees may be called back. It has been reported thatprofessionals stay current in their knowledge up to 10years after leaving the industry, so there is indeed a verylarge pool of potential talent from which to draw. But it iscostly to retain staff beyond retirement, and the costs andbenefits must be carefully considered.

Geographic IntensityAnother option is to recruit in nontraditional geo-graphical regions. China is now producing approximately100,000 energy graduates a year. In Russia, the MoscowInstitute of the Petrochemical and Gas Industry alone hasan enrolment of 8,000 students and is adding 1,500 moreeach year.

There are growing pressures from the governments ofmany countries for international oil companies to playa more active role in expanding education and trainingopportunities. Resource-rich countries, particularly inthe Middle East, increasingly expect international oiland gas companies to take part in developing the localworkforce. Companies which recognize this as a majorsource of future talent will gain a competitive advantage.While many companies have a rather skeptical view oflocal content requirements, it is increasingly recognizedthat an effective strategy for meeting these requirementshas several benefits, including the ability of companies torecruit more labor, develop good working relations with

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local governments, and possess local knowledge, whichis of crucial importance when building business sustain-ability and working with local subcontractors, unions,and community stakeholders. Another advantage is that amajority of the technical training in petroleum and otherengineering disciplines can be provided in any part ofthe world and often at a much lower overall cost than inEurope or the US.

Some oil and gas companies have appointed regionalrecruitment directors and established policies to recruit ina wide geographical area, in particular in countries wherethey operate. There are, however, two important condi-tions to make these recommendations effective.

First, human resource planning has been, for manyyears, the stepchild of the oil and gas companies. Beinga capital-intensive industry, the boards of most compa-nies focus on investment planning, marketing strategies,and other key issues. Human resource planning is oftenrelegated to the lower echelons in the hierarchy. Thisneeds to change. Human resource planning needs to beupgraded to the board room. The proposals for avoiding

future skills shortages are unlikely to be implemented

successfully without the backing and support of theboard room.

A second condition for these policies to work is to setup mechanisms facilitating collaboration and coordina-tion among oil and gas companies. In the past, oil andgas companies have mostly responded individually, andwithout coordination, to skills shortages. But a strategyof going it alone is unlikely to produce optimal results.

The impact will be larger if the industry takes joint actionon any of these proposals.

There are many examples, from the past, of other indus-tries facing serious challenges and deciding to join forcesbecause the challenges are too big and individual respons-es not adequate. The prospects of yet another majorskills shortage in the oil and gas sector is a challengeeasier to meet when there is effective coordination andcollaboration among companies. Joint action could start,for example, by establishing a mechanism to collect datafrom companies to produce an accurate forecast of aggre-gated global demand and supply of skills in the industry. Aforum could also be established to exchange views, infor-

mation, and decide where joint action is needed.JPT

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Case 2. An operator in South Americahad performed three bare-screencompletions, in which fluid lossesprevented the continuation of fullcirculation returns while displacinghorizontal openhole pay sections tofiltered completion brine. The best ofthe wells was producing 4,500 bbl offluid per day. The underperformancewas attributed to fluid losses andreduced circulation rates, leading topoor cleanout of openhole lateral payintervals. Low-velocity rates wouldnot remove drilling debris and drill-influid residue from the laterals. Under

production, the debris plugged thesand screens.

On the fourth bare-screen comple-tion, the operator and service companyfollowed these steps:

1. Ran into the wellbore to depth inthe lateral, circulating the open holefull with filtered completion brine; fluidlosses were 40 bbl/hr (106 L/min).

2. Placed a 50-bbl carbonate pill inthe lateral; fluid losses were reduced to

16 bbl/hr (42 L/min). This level of losswas still too high.

3. Ran a 35-bbl (one openhole volume)associative-polymer treatment; fluid loss-es decreased to 2 bbl/hr (2 L/min)

4. Circulated the well to filtered brine;FL was low enough to give static fluidconditions without measurable lossesduring screen-running operations.

Case 3. The service company wasattempting to clean formation sand outof a well by means of a foamed-gelapplication. The sandstone formationwas perforated from 5,820 to 5,380 ft,

with BHT of 160F and permeability ofapproximately 30 md. The goal was toclean the well from 5,820 ft down to adrillable bridge plug at 6,470 ft. Whenthe cleanout work string was washeddown to the perforated interval, circula-tion fell off dramatically. Service compa-ny operators increased foam quality andtried varying pumping techniques, butcould not re-establish circulation. Theoperators then spotted two 10-bbl asso-

ciative-polymer pills across the perfo-rated interval and immediately regained100% circulation. The cleanout wascompleted with no further circulationlosses. The well resumed productionwithout any problems observed, andproduction stabilized at a rate signifi-cantly higher than before the treatment.

References

Eoff, L., Dalrymple, D., Reddy, B.R.,Morgan, J., and Frampton, H. 2003.Development of a HydrophobicallyModified Water-Soluble Polymeras a Selective Bullhead System for

Water-Production Problems. PaperSPE 80206 presented at the 2003International Symposium on OilfieldChemistry, Houston, 58 February.

Zaitoun, A. and Kohler, N. 1989.Improved Polyacrylamide Treatmentsfor Water Control in Producing Wells.Paper SPE 18501 presented at the1989 SPE International Symposiumon Oilfield Chemistry, Houston, 810February. JPT

TECHNOLOGY UPDATE (Contd. from page 30)