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The Times: An energy industry sapped of manpower

The Times April 17, 2006

An energy industry sapped of manpower

By Carl Mortished

A staffing crisis is crippling the oil and gas sector

AN ACUTE shortage of skills in the oil and gas industry has become a crisis, a problem as serious as the shortage of rigs and equipment and one that is forcing companies to absorb huge salary increases to keep projects running.

The dearth of qualified professionals — reservoir engineers, geophysicists and project designers — is so acute that oil and gas projects are being delayed, putting at risk expectations of future production and delivery of fuel.

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Alarm bells are ringing in the United States, where contractors working on major liquefied natural gas (LNG) projects are complaining of labour and equipment shortages. According to Wood Mackenzie, a six-month delay to all the LNG projects under construction would leave the US with a potential gas shortfall of two billion cubic feet per day in the winter of 2008-09.

“The industry is in a people crisis,” said Dennis Proctor, chief executive of Hunting, a British oil services company that sells drilling and well technology to leading oil companies. “I have seen salaries double in a year.”

What has become a headache for the big oil companies is proving to be a prolonged party for the oil services sector. The share prices of leading oil service companies, such as Schlumberger and Halliburton, have more than tripled over the past three years, lifted by the oil price and by a scarcer commodity — skilled personnel and patented technology.

They are selling their skills in places where big oil is mainly unwelcome. Saudi Arabia and other Gulf states continued to deny the hungry BPs and ExxonMobils access to their precious oil reserves.

Instead, Saudi Aramco often will pay oil service companies to do the same job, using the latest technology.

“Historically, oil majors brought skills, capital and drilling technology. Now, these national oil companies don’t need the money, but they still need drilling technology,” Mr Proctor said.

Several decades ago, BP, Shell and Total would drill their own wells, but the fashion for outsourcing and investor pressure to trim the fat from corporate bones persuaded the oil majors to hand over the grubby end of the business to service companies.

In 1998, the price of a barrel of crude fell below $10, less than the cost of production. Facing penury and ridiculed for being old economy rust- buckets, the oil multinationals laid off contractors and then shed their own staff. Research programmes were cut and the flow of petroleum engineering graduates from American colleges dwindled as students shunned a sunset industry in favour of Silicon Valley. The tide has turned.

“What we have also seen is mega-mergers,” Mr Proctor said. “After the deal, the next day’s headline would be: ‘15,000 people laid off.’ ”

Christophe de Margerie, Total’s head of exploration, says that the industry should not be criticised for shedding people as the oil price plummeted but said that the oil industry is paying the price for the shrunken skill base that has been to the benefit of oil service firms. “They have been clever, in that they have spent money on research,” he said.

The dearth of new blood has left the oil industry with an ageing workforce, recently alluded to by Lord Browne of Madingley in a speech “Beyond Retirement”. The BP chief, 58, noted that in the key discipline of petroleum engineering in BP’s exploration business, half of the key staff were over 45 and a disproportionate number aged over 50.

Lord Browne called for a change in attitude towards age in the workforce, but for those willing to work in challenging environments, the oil industry is prepared to pay substantial sums, a sign that necessity is a great destroyer of prejudice.

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