OIL’S WILD RIDE ROUNDING UP THE RIGHT TALENT

AUTHORS

Keric Morris, Partner, Oliver Wyman

John Koob, Partner, Mercer

Jay Doherty, Partner, Mercer

Energy

The on-going fluctuations in the oil price will once again

test whether the industry can shrink its workforce while

holding on to the right talent to grow again in the future.

Just last year, we published an article about the oil and

gas talent gap on how the industry could prepare for a

chronic shortage of experienced employees.

The oil price escalation and resource crunch of recent

years have highlighted the importance of strategic

human resources delivery and talent management.

Effective talent management has been a key constraint

driving both labor costs and a company’s ability to

effectively deliver profit.

With the drop in oil prices, the immediate problem

changes, but the long-term challenge does not. Energy

companies need robust HR processes to manage growth

and contraction while building organisational strength

and capability for the future. Those that are best able

to respond without simply taking a slash-and-burn

approach will be the first to recover and in the best

position to take advantage of future growth.

Exhibit 1: Impact of oil prices on oil and gas labor market

THOUSAND EMPLOYEES

O&G extraction

Oil price

Refineries

Pipeline transportation

250 100

200 80

150 60

100 40

50 20

300 120

350 140

00

19921990 19961994 20021998 2010200620042000 20122008 2014

OIL PRICEUS$

Upstream also followed the price trend – but witha lag and less volatility

Support services followed the price trendclosely – it immediately reacted

Midstream and downstream donot respond as much

Construction respondswith a lag O&G support

services

O&G pieplineconstruction

Petrochemicals, industrial gases, synthetic dyes, and pigments

Source: BLS for labor data, and Platts for Brent oil prices and Mercer analysis. Prices are shown in 2013 current US$

SHRINKING THE WORKFORCE FOR FUTURE GROWTH

2

One thing is certain: The impact of the drop in oil prices

affects each company differently, with regional, political,

value chain exposure, scale, cash flow, and balance sheet

strength all playing important roles in determining the

appropriate future strategy.

With previous oil price drops, the main impact of

workforce contractions occurred upstream, particularly

in oilfield services. This trend is repeating, with many

majors and independents already cutting exploration

and production investment this year and downsizing

corporate centres. Consolidation is occurring in certain

sectors like oilfield services. However, with national

oil companies trying to buy reserves on the cheap and

downstream companies benefiting from the market

fluctuations, major players will find opportunities and

risks to evaluate.

There is a clear window in the sector to selectively hire

workers with skills that normally take 12-plus years to

develop. Organizations in a strong financial position

can acquire not only reserves and physical assets,

but also lure top talent. Examples include recruiting

experienced project managers to upstream companies

to deliver critical projects and targeting talent involved

in high-cost programs such as enhanced oil recovery.

However, not all regions will experience the talent shifts

equally. Exhibit 2 maps out where the greatest talent

upgrading opportunities will likely exist in 2015–2016.

Exhibit 2: Projected global labor market response to the downturn

Red/Orange indicate recruiting opportunities for experienced talent

Sharp cutsin workforce

• CAN

Workforce reductions

• USA

• CHN

• AUS

Sector reductions and wage freezes

• MEX

• BRA

• ARG

• NGA

• NZL

Selective reductions by some

• GBR

• RUS

• MYS

Stable

• VEN

• COL

• ESP

• ITA

• DEU

• NOR

• ZAF

• IRN

• TKM

• KAZ

• IND

• IDN

• KWT

Workforce growth

• IRQ

• QAT

• OMN

• SAU

2015–2016 WORKFORCE IMPACT OF LOWER OIL PRICES

Source: Mercer Workforce Sciences Institute

3

Exhibit 3: Demand and supply: Creating a view of the talent continuum

SUPPLY DELIVERYDEMAND SCENARIO DEVELOPMENT

INVESTMENTS

TALENT NEEDS

EXISITINGOPERATIONS

TALENTDEPLOYMENT

CONTINGENTAND MOBILEWORKFORCE

TALENTDEVELOPMENT

TALENTACQUISITION

DEMANDFORECAST

TALENT SUPPLYATTRACTION,

RETENTION ANDENGAGEMENT

BUSINESSSTRATEGY

HR STRATEGIC SUPPORT

HR OPERATIONAL SUPPORT/PROCESS CHANGE CORE HR DELIVERY

Many organizations have grappled with the pressures

of too few workers in recent years by developing more

forward-looking HR strategies and investing in programs

and processes such as strategic workforce planning. The

recent price drop is both sharper and more pronounced

than the prior upward trend and will require both agility

and good underlying data to effectively respond.

This will require ensuring that the HR function has

the right processes, tools, skills, and positioning to

effectively support and influence decision-making.

Companies must also create an end-to-end, data-based

approach to staffing in order to create a proportionate

response. This should include a deep understanding of

the economic outlook and trends facing the industry,

their likely impact on the organization, and a strategic

view of how to manage those issues and constraints

from an HR perspective.

4

REPOSITIONING HR IN STRATEGIC DECISIONS

The start of that journey is giving HR a greater role in

cost management and in recruiting and retaining talent.

Using HR to simply enact strategic decisions (supporting

business units to deliver against cost down targets) leads

to suboptimal delivery and, in the worst case, long-term

issues retaining the knowledge and capability critical for

future performance. This approach could also potentially

miss some of the creative benefits, pensions, rewards, and

related opportunities to manage costs more effectively

(see “Managing Human Capital Assets During a Market

Disruption” – Mercer 2015), thereby reducing the need for

staff reduction programs, which pose high risks.

To drive robust and effective core talent decisions

requires a change in process – that is, positioning core

elements of HR in board investment (project portfolio

management), corporate and operating decision

forums. In addition, robust talent data is critical,

including numbers, capabilities, workforce drivers,

capability gaps, and supply and demand forecasts,

as well as alternative options (contractor, joint venture,

acquisitions, etc.), to enable the team to challenge and

support decisions on strategy.

DEVELOPING THE SUPPORTIVE THINKING

The focus of many strategic workforce planning

initiatives has been solving the somewhat intractable

issue of meeting the increasing demand for key skills in

the business. It has been a matter of receiving demand

data and creating the right levels of supply. The issues

faced today create a different type of demand and the

need for more predictive analysis. For the best possible

long-term outcomes, the focus needs to shift to working

with the business to support decisions by having access

to robust talent intelligence:

• Establish current skills map (including locations, job families, capabilities, etc.), benchmarked against best practice to highlight gaps and opportunities

• Develop demand scenarios that test the extremes of price movements to understand competitiveness and vulnerabilities in workforce composition

• Define options, including the use of other levers (benefits redesign, alternative workforce configurations, etc.) to achieve the required levels of change in the business while keeping a strong focus on growth as the market stabilizes

OLIVER WYMAN AND MERCER FRAMEWORK

MANAGING TALENT WITH CREATIVITY

A more holistic approach to talent management

enables development of more creative delivery

options and potential strategic investments:

• Use the market downturn as a catalyst to support the great crew change as baby boomers retire. Draw on different models for contract workers, early retirement, etc. while building accelerated knowledge transfer approaches

• Use the market disruption to target, recruit, and upgrade specific skills previously in short supply but needed for growth

• Work with other market players to develop:

− Talent-based joint ventures and key resource sharing schemes, including with contractors

− More radical approaches to using and managing contractors, such as rebalancing the knowledge equation by bringing capabilities back in-house

5

EMBEDDING SUSTAINABLE CHANGE IN THE BUSINESS

While the short-term imperative is for the business to

adjust to prevailing market conditions, now may be

the time to forge a longer-term approach to managing

demand for staff. This requires creation of robust

processes that build talent management into investment

decisions and redesign the management approach

regarding business unit demands.

Exhibit 4: Redesigning the talent management approach

FUTURE PROJECTS

EXISTING OPERATIONS

CONSOLIDATION

Scenario preparation Scenario modelling

Entities Express Resource Needsto Completion

Analysis of costs forecasts, workloads

and delivery schedules

Analysis of costs forecasts, workloads

and delivery schedules

Agree on Scenarios

New project resource

needs

Head ofOperation validation

Head ofEntity validation

Head ofProjec validation

Analysis of costs forecasts, workloads

and delivery schedules

Agree on Scenarios

Head ofEntity validation

Head ofProjec validation

Scenario models

Scenario validation

3 times a year

Scenario Modelling

Monthly or more

Modelling(workload revenue)

Monthly or more

Consolidation ExistingOperations and Future

Project Activity

Monthly or more

Businessreview

3 timesa year

Output:SWP

Monthlyor more

Other Clients

• OCD

• Operational entities (Monthly use)

• CFO

• Reporting

Analysis of workload capacity with entities:

• Adequacy

• Subcontracting

Subcontracting

Feedback fromentities and

iteration of thewhole process

Outputsare reviewed,iterated, and

communicatedto stakeholders

Define the sta�ng levels for existing operations(focus on using a standard build approach). Build in changes

in operations and performance improvement requirements

Embed the talent discussion inlong-term scenario planning to

e�ectively model talent constraintsModel

scenariosto balance

ops, finance,HR, etc.

constraints

Demandforecasts forsteady-stateoperations

and newprojects are

consolidatedor remodeledDevelop standard models and

approaches to drive demand forecasting

This will require experimenting with processes and

approaches, from pure analytical modelling to changing

the way resources are managed in the business. For

example, it may mean rebalancing the needs of the

business or project with the needs to develop staff

(creating teams with blended skills, rather than putting

the A team on the biggest projects and the rest on what

is left) and creating a better staff value proposition

(professional development, career paths, etc.).

Other, more far-reaching changes will also be required.

For example, companies must develop the metrics to

support effective delivery (from investment decisions

to project and site closure) and strengthen the ability of

the HR team to challenge and support the business on

core decisions utilizing more data-driven approaches.

The process will also need to be dynamic, reviewing and

revising the approach to allow for changing business and

market needs.

The overall dynamics in oil and gas are changing to

a more market-led approach, and while the drop in oil

prices is only a short-term phenomenon, the return

to oil prices at mid-2014 levels is at best some way off.

The operating models need to change to reflect this and

the way that talent is managed also needs to change

to effectively build for the future. The last downturn

saw a considerable amount of knowledge and talent

flight, slowing the recovery. While driving a more radical

redesign of HR processes/positioning and staffing

approaches will have an impact on current cost down

programs, positioning the business now to reflect the

current market conditions while keeping an eye on the

future will enable businesses to recover more quickly

and be better equipped to ride the next upswing.

6

This article is part of a series that explores the impact of the 2015 market disruption on the global oil and gas industry.

MARSH & MCLENNAN COMPANIES APPROACH TO MANAGING THROUGH THE DOWNTURN

Managing Risk,Driving E�ciencyBlending operational excellence and riskmanagement to drive value

Right-Sizing ITDriving performancefrom existing investments

The Talent ContinuumUsing a data approachto drive strategic humanresources delivery

Process StandardisationDriving for repeatable,low-cost processes

PMI in the downturnUsing M&A in the downturn

to reposition the business

Optimising JVsCreating more flexible

joint-venture approaches

Innovative Supply ChainsRedesigning and

cutting risk in supply chains

Regulatory ChangeInfluencing regulators

to reflect market changes

OIL’S WILD RIDEREDESIGNING

THE OPERATING MODEL

77

ABOUT OLIVER WYMAN

Oliver Wyman is a global leader in management consulting. With offices in 50+ cities across 25 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm’s 3,700 professionals help clients optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies [NYSE: MMC]. Follow Oliver Wyman on Twitter @OliverWyman.

ABOUT MERCER

Mercer is a global consulting leader in talent, health, retirement, and investments. The company helps clients around the world advance the health, wealth, and careers of their greatest asset – their people. Mercer’s more than 20,500 employees are based in more than 40 countries, and it operates in more than 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies.

ABOUT MARSH & MCLENNAN COMPANIES ENERGY VERTICAL

Mercer and Oliver Wyman help organizations in the oil and gas industry outpace the competition through a combination of expert global, regional and local resources; deep project experience across the value chain; unequaled global oil and gas workforce data and insights; and cross-industry adaptive innovation. Working together with companies, we can go beyond simple benchmarking to identifying the future competitiveness of your workforce and craft solutions unique to the industry that move the workforce toward optimum. To learn more, please visit www.mercer.com/energy and www.oliverwyman.com/insights/energy.html.

FOR MORE INFORMATION ON THIS REPORT, CONTACT

KERIC MORRIS

Partner Oliver Wyman keric.morris@oliverwyman.com

JOHN KOOB

Partner Mercer john.koob@mercer.com

JAY DOHERTY

Partner Mercer jay.doherty@mercer.com

Copyright © 2015 Oliver Wyman & Mercer

All rights reserved. This report may not be reproduced or redistributed, in whole or in part, without the written permission of Oliver Wyman and Mercer, and Oliver Wyman and Mercer accepts no liability whatsoever for the actions of third parties in this respect.

www.oliverwyman.com

www.mercer.com