Help Wanted: Solving the Oil and Gas Labor Crunch
World Energy Magazine, Vol. 5, No. 3, 2002

Article by
Duane C. Radtke
President and Chief Executive Officer

Anyone familiar with the domestic oil and gas business knows the industry is graying around the temples. From geologists to roughnecks, the average age in the workforce is 48 years old - among the oldest of any U.S. industry. According to the National Petroleum Council, fully 40 percent of the industry's workers will reach retirement age during this decade.

An aging workforce in and of itself isn't a bad thing. Experienced workers provide competitive strength, institutional knowledge and vital job skills. Unfortunately, many of the sector's best and brightest left after the last cycle of consolidation, divestiture or downsizing - and they haven't returned.

For example, a study by John S. Herold, Inc. found that the 10 largest oil companies handed out almost 39,000 pink slips in 1999 alone. Couple that exodus with early retirements and the industry's inability to refill the employment pipeline with new talent, and you've got a serious human resource crisis with far-reaching implications for productivity improvements and earnings growth.

A recent report by an Interstate Oil and Gas Compact Commission task force chaired by North Dakota Gov. John Hoeven stated that "A tight labor market for U.S. petroleum professionals - geologists, engineers and geophysicists - looms on our horizon… a coordinated industry effort involving industry, government agencies, and educational institutions is needed to reach out and educate the public about the importance of oil and gas to the national and global economy."

The U.S. Bureau of Labor Statistics confirms that enrollment in the geosciences has dropped sharply since the 1980s. Despite hundreds of accredited colleges and universities offering bachelor's degrees in engineering and engineering technology, fewer than 600 students nationwide are studying to be petroleum engineers. Projected enrollment is expected to remain flat until at least 2008.

Unfortunately, the employment picture could get worse before it gets better. The U.S. Department of Labor "Occupational Outlook Handbook" predicts that job opportunities in the oil and gas sector will decline by 17 percent between 1998 and 2008 - the worst employment outlook of any segment of the U.S. economy. That's a disturbing statistic, especially since global demand for oil and gas is expected to remain strong.

My company is very concerned about this critical shortage of skilled professionals. I'm especially concerned when colleagues tell me that "people issues" are having a greater impact on business than equipment availability or low commodity prices.

In a reversal of the industry's usual pattern, the majors have begun enticing workers away from independent producers - an indication of just how tight the labor market really is.

In this environment, companies need to take a hard look at their recruitment, retention and management styles. Monitoring market trends, participating in industry compensation and benefit surveys, fine-tuning recruitment tactics and policies - these and other important initiatives may help ease the pain, but they don't address the root problem: the boom/bust nature of the industry and negative public perceptions about the oil and gas business.

Working in a commodity-based business is like riding a roller coaster. The E&P industry's traditional approach has been to ramp up production when prices are high and cut back when prices fall. Employment levels rise and fall accordingly.

It's a commonly heard refrain that our industry offers jobs but no careers. For many individuals, that may be true. It's tough to think in terms of a career when you're laid off and hired back, over and over.

The industry will need a strong dose of discipline and an iron stomach to change this pattern. But greater consistency in drilling programs would certainly help even out the employment peaks and valleys. An environment of increased long-term price stability would help mitigate the projected shortage of skilled workers - even if the industry has to live with some short-term volatility in wellhead prices.

Unfortunately, there's no silver bullet that's going to remedy the situation overnight. A business cycle that ebbs and flows is in the nature of the beast. One thing companies can do is to make competitive wage scales a priority in order to keep and attract good talent. And as we've done at Dominion, companies can ensure that training, performance management and succession planning are integrated into their employee development plans.

The "perception problem" is widespread but more within the industry's control to change - with a helping hand from policy makers and academicians, as the IOGCC task force report I cited earlier correctly points out.

Granted, a 20-year bear market in the energy sector has made for a challenging operating environment. It's going to take a concerted, cooperative effort to promote the industry's positives and counter the prevailing image of energy as a slow-growth, old economy behemoth that treats people more like disposable goods than human capital.

Ask the average American what he or she knows about the oil and gas business. Invariably, the answer is the Exxon Valdez or J. R. Ewing - assuming they're at least 20 years old.

The image of oil-soaked birds and animals washing up on the shore of Prince William Sound is deeply embedded in the American psyche. And Larry Hagman's J.R., the greedy, conniving and power-mad Texas oilman from the hit TV series Dallas, is a pop culture icon synonymous with deceit and corruption. (It remains to be seen what despicable characters Hollywood might create from the recent spate of corporate scandals).

The media, of course, contributes to the industry's tarnished image. Articles and broadcasts about layoffs, environmental disasters or price gouging at the gas pump dominate the news. When's the last time we heard about one of the industry's successful environmental protection programs? Or a story describing how the energy business has become as innovative a technology incubator as any industry in the world?

There are numerous positive aspects of the industry that aren't widely known. If those of us in the business don't tell the world about them, who will?

Oil and gas are critical to the U.S. economy. As the population grows, vehicle use increases, and gas-fired power generation expands, demand for these commodities will continue to rise. Long-term prices should be solid. New technologies should continue to improve the science behind drilling and help reduce finding and production costs.

In short, there's a good story to tell here. Underlying E&P fundamentals are healthy. Balance sheets and cash flows are strong. Companies are financially disciplined and focused on shareholder value, return on capital employed, and growth in reserves and production.

While numerous industries are grappling with slow growth, no growth or even contraction, E&P companies are pursuing economic projects with significant long-term potential.

In addition, companies with assets in the ground and real earnings look appealing to investors troubled by today's market and political uncertainties. According to JP Morgan Securities, E&P stocks were up 8.5 percent during the first half of 2002, while the Standard & Poor 500 tumbled 14 percent.

In a nutshell, the outlook for oil and gas is bullish. I'm no PR expert, but there seem to be plenty of good selling points around which to structure communications targeting our schools and the public at large. We need to give students more reasons why they should consider careers in oil and gas. And we need to demonstrate to the American people how vital our business is to their quality of life.

Altering perceptions is a long-term proposition. Change won't occur immediately. And the problem is too complex for the industry to solve on its own.

I don't mean to imply that nothing is being done to address the issue. A variety of public and private sector programs are in place to improve the industry's image and expose students to careers in oil and gas.

For example, the U.S. Department of Energy's Office of Fossil Energy provides internships to minority students whose studies are related to the fossil fuels. DOE-funded research sites provide opportunities for students to gain hands-on experience. Individual states, most noticeably Oklahoma, have developed successful public and student education programs.

Private companies also offer scholarship and mentoring programs to bring young people into the industry. Dominion, for example, has a college scholarship fund that is linked closely with the company's diversity programs.

All of these initiatives are valuable, but they have tended to be intermittent and unfocused.

Governor Hoeven's blue ribbon task force report is a valuable resource and roadmap for navigating through the maze of workforce challenges facing the oil and gas sector. The call for more effective partnerships between business, government and the educational community should not go unheeded. Each has a role to play in resolving the labor shortage issue.

The industry must be resourceful in finding new ways to attract and hold onto young and veteran professionals. Along those lines, Dominion is ramping up its summer internship programs and college recruitment efforts. In general, more resources must be channeled into internship, training and career development programs.

To date, technology has been fairly effective in offsetting the effects of a shrinking workforce. And new E&P technologies continue to hold great promise for things like improved drilling success rates. But the benefits we expect to derive from technological advances won't materialize if the employment market remains unstable and our workers don't have the skills to apply them.

What good does it do, for example, to have the technical means to collect and analyze data from 1,000 wells in a fraction of the time it used to take to analyze 100 if the people looking at the data don't know how to interpret it?

Ultimately, technology is only as good as the people who use it. Companies that stress training and human resource development will be in the best position to harness technological innovation and achieve competitive advantage going forward.

Federal and state governments also should step up their funding for educational and vocational training programs and research grants going to colleges and universities.

Oil and gas producing states have a particular interest in stimulating awareness of the energy business. During the 1997-1999 oil price bust, for example, the states lost almost $60 million in royalty revenue and felt the economic effects of hundreds of millions of dollars in lost salaries related to workforce layoffs.

The academic community must do its part by continuing to provide the educational foundation of tomorrow's petroleum professionals and by conducting the vital research that underlies technical innovation.

The industry's personnel crunch has been a long time in the making. It's going to take patience, commitment and a long-term perspective to turn it around.

The key point is this: The growth and success of the domestic energy business is closely linked to the quality of its workforce.

Competition for new talent and experienced employees will only intensify in the years ahead. Tackling the oil and gas labor crunch is a necessary step in ensuring a prosperous future for the industry - and an adequate energy supply for America.

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